Figure 13-14

Figure 13-14 illustrates a monopolistically competitive firm.
-Refer to Figure 13-14.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?
A)The firm wants to maximize accounting profit rather than economic profit.
B)The firm would suffer an economic loss at Q₁ while it would break even at Q₀.
C)The firm's marginal revenue would be negative at Q₁.
D)Demand is not sufficient for consumers to buy Q₁.

Question

Figure 13-14
  
Figure 13-14 illustrates a monopolistically competitive firm.
-Refer to Figure 13-14.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?
A)The firm wants to maximize accounting profit rather than economic profit. 
B)The firm would suffer an economic loss at Q₁ while it would break even at Q₀. 
C)The firm's marginal revenue would be negative at Q₁. 
D)Demand is not sufficient for consumers to buy Q₁.

Quizplus · Accepted Answer

At Q₁, the firm's average cost is higher than its marginal revenue. Therefore, the firm would suffer an economic loss at Q₁, while it would break even at Q₀. Hence, it would not be profitable for the firm to expand output beyond Q₀ to Q₁.

Figure 13-14 Figure 13-14 Illustrates a Monopolistically Competitive Firm