Consider a Firm Operating in a Perfectly Competitive Market

Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $28. At this output, average total cost is minimized and equals $25. Given this information, what should the firm do?

A) ​Continue to produce 200 units, since costs per unit are minimized
B) ​Increase output beyond 200 units, since this higher output will yield the profit maximizing output level.
C) ​Decrease output below 200 units, since this lower output will result in the profit maximizing output level.
D) ​More information is needed to determine the firm's next step.

Correct Answer:

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