Assume Cathy's Cupcake Company operates in a perfectly competitive market producing 10,000 cupcakes per day. At this output level, price exceeds this firmʹs marginal and average variable costs. To maximize profits, Cathy's should
A) make no adjustments as they are already maximizing their profits.
B) increase their output.
C) decrease their output.
D) stop producing since it is earning a loss.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, if the price exceeds both marginal and average variable costs, the firm can increase profits by increasing output until price equals marginal cost.

Assume Cathy's Cupcake Company Operates in a Perfectly Competitive Market