Assume price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximise profits the firm should
A)continue to produce the same quantity.
B)increase output.
C)decrease output.
D)shut down.

Question

Quizplus · Accepted Answer

Since the monopolistically competitive firm is producing at a level where marginal revenue ($23) is greater than marginal cost ($19), the firm can increase its profit by increasing its output. This is because producing more units will result in an increase in total revenue that is higher than the increase in total cost, thereby boosting the firm's profit. Therefore, option B (increase output) is the best choice. Option A (continue to produce the same quantity) would not result in any change in profit, while options C (decrease output) and D (shut down) would lead to a reduction in profit.

Assume Price Exceeds Average Variable Cost Over the Relevant Range