If a competitive firm doubles its output, its total revenue:(a) Doubles.(b) More than doubles.(c) Less than doubles.(d) Cannot be determined because the price of the good may rise or fall.
Answers
Answer: a. Doubles
In this question, we assume that perfect competition is prevailing.
This means that the price of the commodity is determined by the market forces of demand and supply.
This also means that a competitive firm can sell any number of products it chooses to produce at the market price and total revenues are dependent only on the quantity it produces.
Hence, if the a firm doubles its output, its total revenues will also double.
If a certain competitive firm tends to double the amount of output it used to produce a certain amount of goods but their output is doubled then we will see that there will be a rise in their revenue as well.
This means that their revenue will get doubled.
The profit margins will increase because of this as well.