Asked by Daman Preet Dhillon on Apr 25, 2024
Verified
Use the following statements to answer this question: I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward.
II) Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.
Marginal Cost Curve
A graphical representation showing how the cost of producing one additional unit of a good changes as production volume changes.
Perfect Competition
Perfect competition describes a market structure where many firms sell identical products, no single buyer or seller can influence the market price, and there is free entry and exit of firms.
Firm Profits
The financial gains a company makes after deducting all its expenses.
- Understand the principle of marginal cost and its significance in the decision-making process regarding production and supply within a company.
- Examine the consequences of technology innovation and input price changes on the cost curves and optimal production of firms.
Verified Answer
YG
Yamirka Gonzalez7 days ago
Final Answer :
B
Explanation :
I is true because the marginal cost curve intersects the average variable cost curve at its lowest point, so if the marginal cost increases, it will also pull the average variable cost curve upward. II is false because under perfect competition, firms are price takers and cannot influence the market price. An increase in marginal cost would reduce output and profits, as firms adjust output to where price equals marginal cost, and higher costs at any output level would reduce profit margins.
Learning Objectives
- Understand the principle of marginal cost and its significance in the decision-making process regarding production and supply within a company.
- Examine the consequences of technology innovation and input price changes on the cost curves and optimal production of firms.