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

Kianna

7 August, 17:02

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.

+2

Answers (1)

Know the Answer?

Gillian · 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)