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In a perfectly competitive industry, the market price of the product is $12. A firm produces at a level of output where average total cost is $16, marginal cost is $16, and average variable cost is $8. To maximize profit, the firm should:___________.A. decrease its selling priceB. increase its selling priceC. decrease output but keep producingD. shut downE. leave both price and output unchanged

Respuesta :

Answer:

The correct answer is C. Since price is less than marginal cost, the firm should decrease output.  

Explanation:

The answer is NOT that the firm should increase its price as the other respondent claims. Price is fixed in a perfectly competitive industry, so increasing price would drastically decrease profits. When P<MC, decreasing output is how to increase profits. Profits are maximized when P=MC.

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