Assume that a firm is producing at its profit-maximizing level of output. A decrease in the price of raw materials used in production is most likely to lead to:
A) an increase in quantity produced at an unchanged price.
B) a fall in the price of the good and an increase in the quantity produced.
C) a fall in both the price of the good and the quantity produced.
D) an increase in both the price of the good and the quantity produced.
E) a fall in the quantity produced of the good at an unchanged price.

Question

Quizplus · Accepted Answer

A decrease in the price of raw materials lowers production costs, enabling the firm to produce more at a lower cost. This typically results in a lower selling price and higher quantity produced as the firm can supply more at each price level.

Assume That a Firm Is Producing at Its Profit-Maximizing Level