Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

Question

Quizplus · Accepted Answer

The producer's price of $500 per tombstone is below its average total cost of $600 per tombstone, meaning they are losing money on each tombstone sold. Therefore, they are losing $2,000 a week (20 tombstones sold x $100 loss per tombstone). This is not a profitable situation, so new firms will likely not want to enter and competition may even decrease in this market due to the losses experienced by Rolling Stones. Increasing production would only increase the losses.

Tombstones Are Produced in a Monopolistic Competitive Market