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The source writes profit as total revenue minus total cost, and also as (Price)(Quantity produced) minus (Average cost)(Quantity produced). What is the only major decision a perfectly competitive firm must make, given this equation?
AWhich input supplier to use
BWhether to advertise its product
CWhat quantity to produce
DWhat price it should charge buyers
Answer & Solution
Correct answer: C. What quantity to produce
1. The profit equation already fixes price at the market-determined level for a price-taking firm.
2. Since price is not a choice variable, quantity produced is the only variable left in the equation the firm controls.
3. The firm's only major decision is what quantity to produce.
4. Choosing an input supplier or advertising are not decisions this profit equation addresses.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 8 "Perfect Competition", section 8.2 | How Perfectly Competitive Firms Make Output Decisions_
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