Assume a monopolistically competitive firm faces the following situation: P = $20; output = 13,000 units; MC = $16; ATC = $22; AVC = $15; and MR = $16. Which statement BEST describes the firm's situation?
A) The firm is minimizing its losses.
B) The firm is earning a normal profit, indicating that the market is likely in a long-run equilibrium.
C) The firm would minimize its losses by increasing its output.
D) The firm would maximize its profit by decreasing its output.

Question

Quizplus · Accepted Answer

The firm is minimizing its losses by producing where MR = MC, even though it's making a loss since P < ATC. This is the best it can do under the circumstances.

Assume a Monopolistically Competitive Firm Faces the Following Situation: P