A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should:

A. Decrease the level of output.

B. Increase the level of output.

C. Make no change in the level of output.

D. Increase product price.

Question

Business

Delaney Harper

30 October, 20:50

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should:

A. Decrease the level of output.

B. Increase the level of output.

C. Make no change in the level of output.

D. Increase product price.

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Answers (1)

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Salty · Answer 1

B. Increase the level of output.

Explanation:

Whether in the short-run or long-run, monopolistically competitive firms maximize profit by producing where marginal revenue equals marginal cost.

At this time marginal revenue ($6) is still higher than marginal cost ($5). Producing one more unit of out put would yield more profit ($6 - $5 = $1)