A Perfectly Competitive Firm Can Produce Its Current Level of Output

Multiple Choice

A perfectly competitive firm can produce its current level of output at an average total cost of $10 and a marginal cost of $8. If the market price of the product is currently $8, what should the firm do?

A) The firm should definitely shut down since average total cost exceeds price.
B) The answer depends upon the relationship between price and average variable cost.The firm should shut down if average variable cost is $8 or greater, but the firm should continue to produce the current level of output if average variable cost is less than $8.
C) The firm should increase production in order to increase profit.
D) The firm should continue to produce, but they should decrease production in order to increase profit.