### Understanding Revenue Changes in Perfect CompetitionA perfectly competitive firm is producing at the point where its marginal cost equals the price of the product. If it increases its output, its total revenue will:- **a. fall and its profits will rise.**- **b. rise and its profits will fall.**- **c. fall and its profits will fall.**- **d. rise and its profits will rise.****Explanation:**In a perfectly competitive market, firms are price takers, meaning they sell their products at the market price. When a firm produces at the point where marginal cost equals price, it is maximizing its profit because any additional output would cost more to produce than it would earn in revenue. By increasing output beyond this point, total revenue will increase if the price remains constant (option b and d), but profits may not necessarily rise, as the cost of producing additional units can exceed the revenue generated from selling them. On the other hand, if increasing output causes the price to drop significantly (unlikely in perfect competition), total revenue could fall, which aligns with option c. However, option d optimistically assumes that output increase still leads to revenue and profit rise. Critical thinking is required to understand the subtle balance between marginal cost, price, and revenue in such economic scenarios.

We are going to use profit maximisation structure of a perfectly competitive firm

A perfectly competitive firm is producing at the point where its marginal cost equals the price of the product. If it increasese its ouput, its total revenue will a. fall and its profits will rise. b. rise and its profits will fall. c. fall and its profits will fall. d. rise and its profits will rise.

A perfectly competitive firm is producing at the point where its marginal cost equals the price of the product. If it increasese its ouput, its total revenue will a. fall and its profits will rise. b. rise and its profits will fall. c. fall and its profits will fall. d. rise and its profits will rise.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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