Table of contents

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0. Basic Principles of Economics1h 5m
1. Reading and Understanding Graphs59m
2. Introductory Economic Models1h 10m
3. The Market Forces of Supply and Demand2h 26m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
6. Introduction to Taxes and Subsidies1h 46m
7. Externalities1h 12m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. The Costs of Production2h 35m
11. Perfect Competition2h 23m
12. Monopoly2h 13m
13. Monopolistic Competition1h 9m
14. Oligopoly1h 26m
15. Markets for the Factors of Production1h 26m
16. Income Inequality and Poverty35m
17. Asymmetric Information, Voting, and Public Choice39m
18. Consumer Choice and Behavioral Economics1h 16m

11. Perfect Competition

Perfect Competition Profit on the Graph

Microeconomics

11. Perfect Competition

Perfect Competition Profit on the Graph

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Multiple Choice

If the firm decreases its production from Q2 to Q1, it will

Increase its profit

Decrease its profit

Reduce its marginal revenue

Increase its marginal revenue

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Verified step by step guidance

Identify the key curves in the graph: the Marginal Cost (MC) curve, the Average Total Cost (ATC) curve, and the horizontal line representing the price level (P1).

Understand that profit maximization occurs where Marginal Cost (MC) equals Marginal Revenue (MR), which is also the price (P1) in a perfectly competitive market.

Observe that at quantity Q2, the MC curve intersects the price line (P1), indicating the profit-maximizing output level.

Note that if the firm decreases production from Q2 to Q1, the MC is less than the price (P1), meaning the firm is not maximizing profit as it could produce more at a higher price than the cost.

Conclude that reducing output from Q2 to Q1 will decrease profit because the firm is not producing at the level where MC equals MR (price), and thus not maximizing profit.