Refer to the information provided in Figure 15.5 below to answer the question(s) that follow. Figure 15.5
-Refer to Figure 15.5. If the Custom Sweater Shop is monopolistically competitive, what is the maximum level of average variable cost that would lead to the firm continuing to operate at the profit-maximizing level in the short run?

Question

Refer to the information provided in Figure 15.5 below to answer the question(s) that follow.  Figure 15.5
-Refer to Figure 15.5. If the Custom Sweater Shop is monopolistically competitive, what is the maximum level of average variable cost that would lead to the firm continuing to operate at the profit-maximizing level in the short run?

Quizplus · Accepted Answer

The profit-maximizing level of output occurs where MR=MC. In the short run, the firm will continue to operate as long as it can cover its variable costs, so the maximum level of average variable cost that would still allow the firm to operate at the profit-maximizing level is where the AVC curve intersects the MC curve, which is approximately $400 in this case.

Refer to the Information Provided in Figure 15