A monopolistically competitive firm is producing an output level at which marginal revenue is less than marginal cost.This firm should __________ quantity and __________ price to increase profit or reduce losses.
A)increase, increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease
E)increase; not change

Question

Quizplus · Accepted Answer

Since the firm is producing at an output level where marginal revenue is less than marginal cost, it means the marginal cost is greater than the marginal revenue. Therefore, the firm should decrease its quantity to reduce costs and increase its price to increase revenue. By doing this, the firm can increase its profit or reduce its losses.

A Monopolistically Competitive Firm Is Producing an Output Level at Which