Scenario 16-3
A monopolistically competitive firm has the following cost structure:
The firm faces the following demand curve:

-Refer to Scenario 16-3.To maximize profit (or minimize losses),how many units will the firm produce

Question

Scenario 16-3
A monopolistically competitive firm has the following cost structure:
The firm faces the following demand curve:
 
-Refer to Scenario 16-3.To maximize profit (or minimize losses),how many units will the firm produce

Quizplus · Accepted Answer

To maximize profit (or minimize losses), the firm should produce where marginal revenue (MR) equals marginal cost (MC). From the graph, at the quantity of 4 units, the MR intersects the MC curve, which means the firm should produce 4 units. Producing either less or more than 4 units will result in lower profit (or higher losses) for the firm. Therefore, the best choice is C) 4 units.

Scenario 16-3 A Monopolistically Competitive Firm Has the Following Cost Structure