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 maximise 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

If the marginal cost exceeds the price, the firm should reduce its production level. This is because the additional unit produced would cost more than it would generate in revenue. To maximise profits, the firm should produce at a level where marginal cost equals price. In this case, as the marginal cost is greater than the price, the firm should reduce output. Therefore, choice C is the best answer.

Assume That Price Is Greater Than Average Variable Cost