Assume that a monopolistically competitive firm faces the following situation: P = $16; output = 9,000 units; MC = $11; ATC = $10; AVC = $7; and MR = $14. Which statement is correct regarding profit maximization?
A) The firm is maximizing profit.
B) The firm would earn higher profit by increasing output.
C) The firm is minimizing its losses.
D) The firm would earn higher profit by decreasing output.

Question

Quizplus · Accepted Answer

For profit maximization in the short run, a firm should produce at the level where MR = MC. Here, MR ($14) is greater than MC ($11), indicating the firm can increase its profit by increasing output.

Assume That a Monopolistically Competitive Firm Faces the Following Situation