A price-taking rm selling in a market with a price greater than the rm\'s averag

Question

A price-taking rm selling in a market with a price greater than the rm's average total cost should:

Decrease production when market price is greater than marginal cost

Increase production when market price is greater than marginal cost

Increase production when average total cost is maximum

Decrease production when average total cost is minimum

None of these

Decrease production when market price is greater than marginal cost

Increase production when market price is greater than marginal cost

Increase production when average total cost is maximum

Decrease production when average total cost is minimum

None of these

Explanation / Answer

A price-taking firm operates in a competitive market. Its price being greater than ATC implies the firm is making abnormal profits, which is suboptimal in a competitive scenario.

So, it will decraese production & will produce output at a point where ATC is minimum. When Price equals ATC at its minimum, equilibrium occurs.

So the 4th option is correct.

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