Assume that price is greater than average variable cost.If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should
A)continue producing at the current output.
B)produce a larger level of output.
C)produce a smaller level of output.
D)There is not enough information given to answer the question.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms maximize profits by producing at the output level where marginal cost equals price. In this scenario, the marginal cost is $14.54, which is higher than the price of $11. This means the firm is producing at a loss, and should reduce its output to decrease its losses. Thus, the best option is to produce a smaller level of output (Choice C).

Assume That Price Is Greater Than Average Variable Cost