Question

If the competitive firm suddenly notices that price exceeds its marginal cost, it should: Select one:...

If the competitive firm suddenly notices that price exceeds its marginal cost, it should: Select one: a. shut down. b. decrease output. c. raise its price. d. increase output.

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Answer #1

Answer

Option d

d. increase output

The firm produces at P=MC

where

P is a horizontal line as the firm is a price taker

MC is upward sloping

So, the P>MC then the firm should increase output to produce at MC=P which is the profit-maximizing level of output.

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