If a monopolistically competitive seller's marginal cost is $3.56, the firm will increase its output if
A) its marginal revenue is less than $3.56.
B) its marginal revenue is equal to $3.56.
C) its marginal revenue is more than $3.56.
D) its average total cost is less than $3.56.
E) Both answers A and D are correct.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, the seller's profit-maximizing output level occurs where marginal revenue (MR) equals marginal cost (MC). In this scenario, if the marginal cost is $3.56, the seller will increase its output only if its marginal revenue is more than $3.56. If its marginal revenue is less than $3.56, producing more units would decrease its profit. If its marginal revenue is equal to $3.56, the seller is already producing at the profit-maximizing output level. Average total cost is irrelevant to the decision-making process of increasing output. Therefore, only answer choice C is correct.

If a Monopolistically Competitive Seller's Marginal Cost Is $3