Ash Ltd. produces commercial glass using silica as a raw material. Assuming that the firm wants to maximize profits, when the price of silica falls, the firm will _____.

continue to produce the same level of output
increase the level of output producedCorrect
use substitutes for silica in production
shut down production completely

Explanation
Output levels are determined by costs and revenues. When the price of raw materials fall, the firm’s costs will fall and it will produce a higher level of output.