Table 8.1 Table 8.1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases.Assume that output can only be increased in batches of 100 units.
-Refer to Table 8.1.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximising output level?
A)It must fall.
B)It must rise to offset the increased cost.
C)It will remain the same.
D)The firm will shut down.

Question

Table 8.1  Table 8.1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases.Assume that output can only be increased in batches of 100 units.
-Refer to Table 8.1.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximising output level?
A)It must fall. 
B)It must rise to offset the increased cost. 
C)It will remain the same. 
D)The firm will shut down.

Quizplus · Accepted Answer

In the short-run, fixed costs do not vary with changes in output, so the increase in fixed cost will not affect the profit-maximizing output level. The firm will continue to produce the same output level as before, since it is still profitable to do so at $8 per unit.

Table 81 Table 8