Samurai Sam's, a producer of frozen sushi, is a monopolistically competitive firm. The firm is currently selling frozen California rolls at a $4 price. Samurai Sam's marginal cost is $1.75 and its marginal revenue is $1.50. The firm should ________ to maximize profits in the short run.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms maximize profits where marginal revenue (MR) equals marginal cost (MC). Since Samurai Sam's MR ($1.50) is less than its MC ($1.75), the firm should decrease output to reduce the cost and increase MR until it equals MC.

Samurai Sam's, a Producer of Frozen Sushi, Is a Monopolistically