Exhibit 10-1 A monopolistic competitive firm
-As presented in Exhibit 10-1, the short-run profit-maximizing output for the monopolistic competitive firm is:
A) zero units per day.
B) 200 units per day.
C) 400 units per day.
D) 600 units per day.
E) 800 units per day.

Question

Exhibit 10-1 A monopolistic competitive firm 
-As presented in Exhibit 10-1, the short-run profit-maximizing output for the monopolistic competitive firm is:
A) zero units per day. 
B) 200 units per day. 
C) 400 units per day. 
D) 600 units per day. 
E) 800 units per day.

Quizplus · Accepted Answer

In monopolistic competition, firms produce where marginal revenue equals marginal cost (MR=MC) and set a price above marginal cost to make a profit. In this exhibit, MR intersects with MC at 400 units per day, which is also the profit-maximizing output. At this level of output, the firm charges a price of $6, which is above the marginal cost of $3. Therefore, choice C, 400 units per day, is the correct answer.

Exhibit 10-1 a Monopolistic Competitive Firm