The Speedy Typesetting Company, a perfectly competitive firm, is currently producing where P = MC and is earning a normal profit. The firm mainly employs minimum wage workers and the government just increased the minimum wage from $5.85 to $6.55 per hour. In the short run, this firm will most likely
A) reduce the amount of output it produces because its cost curves have shifted up and to the left.
B) continue to produce the same amount of output because only its fixed costs have increased.
C) produce more units of output to increase revenue to cover the additional fixed costs.
D) shut down because it will no longer be earning a normal profit.

Question

Quizplus · Accepted Answer

With the increase in the minimum wage, the firm's cost curves have shifted up and to the left. This means that it will now face higher costs for producing the same quantity of output. As a result, the firm will find it less profitable to produce the same amount of output as before. Therefore, it is likely to reduce the amount of output it produces.

The Speedy Typesetting Company, a Perfectly Competitive Firm, Is Currently