Question

Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. For the individual firm, this would result in:

Answer 1

Answer: Fall in revenue

Explanation:

A decrease in demand means a lower level of demand compare to the previous period. A price taking firm means that the firm cannot determine the price in the market. Profit maximising level of output means the output level that gives the highest profit.

A fall in demand without an increase in price at a profit maximising level of output will lead to a fall in revenue and profit all things being equal.