Assume that a monopolistically competitive firm faces the following situation: P = $26; output = 13,000 units; MC = $16; ATC = $22; AVC = $15; and MR = $17. 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 maximize its profits by increasing its output.
D) The firm would maximize its profits by decreasing its output.

Question

Quizplus · Accepted Answer

Given that the marginal revenue (MR) of $17 is greater than the marginal cost (MC) of $16, the firm can increase its profits by producing more units until MR equals MC.

Assume That a Monopolistically Competitive Firm Faces the Following Situation