Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus) , what is the expected impact on Ronny's profit-maximizing output decision?

A) Output increases to cover the higher input cost.
B) Output increases because the marginal cost curve shifts upward.
C) Output decreases because the marginal cost curve shifts upward.
D) Output decreases because the price of pizza must also increase.

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Jessica Kativa · Accepted Answer

Final Answer : C, Explanation :  In a perfectly competitive market, firms are price-takers and cannot influence the market price. Therefore, when the price of pizza cheese (an input) increases, the firm's marginal cost increases, which means they will be less profitable at each level of output. This would lead Ronny's Pizza House to produce less pizza (output decreases) to maximize their profit.

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