Assume a monopolistically competitive firm is earning an economic profit.The marginal revenue from selling an additional unit is $30 and the marginal cost of producing that additional unit is $23.The firm should

Question

Quizplus · Accepted Answer

If the marginal revenue from selling an additional unit is greater than the marginal cost of producing that unit, the firm should produce and sell that unit as it will add to its economic profit. In this case, the marginal revenue ($30) is greater than the marginal cost ($23), indicating that the firm should produce and sell more. This means that the firm should increase its output level. However, it is also earning economic profit, which means that the price it is charging is higher than its average total cost. To attract more customers and increase sales, the firm should reduce its price slightly. Therefore, the firm should reduce its price and increase its output level. This choice will help the firm maintain its economic profit and increase its market share.

Assume a Monopolistically Competitive Firm Is Earning an Economic Profit