(Figure: Costs and Demand for a Monopolistic Competitor) The
Profitmaximizing amount of output produced:
A)will be 42.
B)will be 32.
C)will be 0 (not profitable).
D)will be 50.

Question

(Figure: Costs and Demand for a Monopolistic Competitor) The
Profit­maximizing amount of output produced:
A)will be 42. 
B)will be 32. 
C)will be 0 (not profitable). 
D)will be 50.

Quizplus · Accepted Answer

The profit-maximizing quantity of output is where marginal revenue equals marginal cost. In this case, it occurs at a quantity of 32, where marginal cost intersects with marginal revenue. At this quantity, the price charged is $16, which is greater than the average total cost of producing each unit ($12). Therefore, the firm earns a profit. Any greater quantity would result in higher marginal cost than marginal revenue, leading to a loss.

(Figure: Costs and Demand for a Monopolistic Competitor) the