Tombstones are produced in a market that is monopolistic competition. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. Its total variable cost is $2,000. Its demand curve is downward sloping. Given this information, we know that
A) new firms will enter the market
B) Rolling Stones loses $2,000 a week
C) Rolling Stones makes an economic profit of $400
D) Rolling Stones makes an accounting profit of $100
E) Rolling Stones should increase production because with a downward-sloping demand curve, it will increase its economic profit

Question

Quizplus · Accepted Answer

Rolling Stones sells 20 tombstones at $500 each, generating $10,000 in revenue. With an average total cost of $600, total costs are $12,000, leading to a loss of $2,000.

Tombstones Are Produced in a Market That Is Monopolistic Competition