Question 1
Assume Cathy's Cupcake Company operates in a perfectly competitive market producing 10,000 cupcakes per day. At this output level, marginal cost exceeds this firmʹs price. Assuming price exceeds average variable cost, to maximize profits Cathy's should
◦ make no adjustments as they are already maximizing their profits.
◦ increase their output.
◦ decrease their output.
◦ stop producing since it is earning a loss.
Question 2
Assume Cathy's Cupcake Company operates in a perfectly competitive market producing 10,000 cupcakes per day. At this output level, price equals this firmʹs marginal cost. Assuming price exceeds average variable cost, to maximize profits Cathy's should
◦ make no adjustments as they are already maximizing their profits.
◦ increase their output.
◦ decrease their output.
◦ stop producing since it is earning a loss.
Competitive inhibition
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