Question

Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. At this output level, marginal cost exceeds this firm's price. To maximize profits, Dell should
A) make no adjustments as they are already maximizing their profits.
B) increase their output.
C) decrease their output.
D) stop producing since it is earning a loss.

Answer 1

Answer:

The correct answer is option C.

Explanation:

Dell computer company is producing 5,000 computers per day.

At this output level, marginal cost is greater than the product price.

In order to maximize profits firm needs to reduce the output to the point where the marginal cost of production is equal to the per-unit price of the product.  

The marginal cost of production is the incremental cost of producing an additional unit of output. If the company reduces the quantity of output produced the marginal cost will reduce as well.