If a monopolistically competitive firm is producing 1,200 units of output and the marginal revenue from producing the 1,200th unit of output is $5 and the marginal cost is $4.50, which of the following is true?

Question

Quizplus · Accepted Answer

Since the marginal revenue ($5) of producing the 1,200th unit is greater than the marginal cost ($4.50), the firm can increase its profit by producing more. This is because each additional unit produced adds more to revenue than it does to cost.

If a Monopolistically Competitive Firm Is Producing 1,200 Units of Output