Table 16-2
A firm has the following cost structure:

-Refer to Table 16-2.If this firm is in a typical monopolistically competitive market,when marginal revenue is $10 and price is $12,how many units of output will it likely produce in the short run

Question

Table 16-2
A firm has the following cost structure:
 
-Refer to Table 16-2.If this firm is in a typical monopolistically competitive market,when marginal revenue is $10 and price is $12,how many units of output will it likely produce in the short run

Quizplus · Accepted Answer

In monopolistic competition, firms have some market power to set their own prices but face downward sloping demand curves. Therefore, they will produce where Marginal Cost (MC) equals Marginal Revenue (MR), but the price will be higher than the MC. In this case, when MR is $10 and the firm is in short-run, it will produce at the quantity where MC = MR, which is 5 units of output. This is because at any lower quantity, the MR is greater than MC, indicating that the firm can increase profits by producing more. On the other hand, at any higher quantity, the MC is greater than MR, meaning that producing less will result in higher profits. Therefore, the firm will likely produce 5 units of output in the short run.

Table 16-2 A Firm Has the Following Cost Structure