Suppose a monopolistically competitive firm can increase its profits by decreasing its output.Then it must be the case that at the current output:
A)marginal revenue is less than zero.
B)price is less than marginal revenue.
C)marginal revenue is less than marginal cost.
D)price is less than average total cost.

Question

Quizplus · Accepted Answer

In order for a firm to increase its profits by decreasing its output, its marginal revenue must be less than its marginal cost. This means that the additional revenue earned from selling one less unit is less than the cost savings from producing one less unit. Therefore, the firm can increase its profits by decreasing its output until marginal revenue equals marginal cost.

Suppose a Monopolistically Competitive Firm Can Increase Its Profits by Decreasing