If a perfectly competitive firm can increase its profits by increasing its output, then that firm's product's __________.
- Aprice exceeds its marginal costs
- Bprice exceeds its average total costs
- Caverage variable costs exceed its average total costs
- Dfixed costs are zero
Solution & Step-by-step Explanation
For a perfectly competitive firm, profit maximization occurs where Price (P) equals Marginal Cost (MC), i.e., P=MC.
If a firm can increase its profits by expanding output, it implies that the revenue gained from selling an additional unit (which equals its Price, P, under perfect competition) is greater than the cost incurred to produce that additional unit (MC). Thus, P>MC.
If a firm can increase its profits by expanding output, it implies that the revenue gained from selling an additional unit (which equals its Price, P, under perfect competition) is greater than the cost incurred to produce that additional unit (MC). Thus, P>MC.