Question

A firm facing a price of $10 in a perfectly competitive market decides to produce 100 widgets. If its marginal cost of producing the last widget is $12 and it is seeking to maximize profit, the firm should ______.

Answer 1

Answer:

produce fewer widgets until the marginal cost = $10

Explanation:

In a perfectly competitive market, all suppliers and consumers are price takers, so this company cannot increase its price so that it matches its marginal cost. Therefore, the only option it has is to try to lower its marginal cost is by lowering total production.