Suppose a monopolistic competitor produces 1,250 units of a good in equilibrium and charges a price of $7.50 for each unit.If the average total cost of producing 1,250 units of the good is $8,what is the total loss incurred by the producer?

Question

Quizplus · Accepted Answer

The monopolistic competitor is producing at a point where marginal revenue equals marginal cost, which is also lower than the average total cost. This means that the producer is incurring losses.

Total revenue earned = Price x Quantity = $7.50 x 1250 = $9,375
Total cost incurred = Average total cost x Quantity = $8 x 1250 = $10,000

Total loss incurred = Total revenue - Total cost = $9,375 - $10,000 = -$625

Since the resulting value is negative, it implies that the producer incurs a loss of $625. Therefore, the correct answer is (C).

Suppose a Monopolistic Competitor Produces 1,250 Units of a Good