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

-Refer to Scenario 16-3.If the government forces this firm to produce at its efficient scale,how many units will it produce and for what profit or loss

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.If the government forces this firm to produce at its efficient scale,how many units will it produce and for what profit or loss

Quizplus · Accepted Answer

The efficient scale for a firm in monopolistic competition is where the firm produces at the minimum point of the average total cost (ATC) curve. In this scenario, the ATC curve is minimized at a quantity of 5 units. At this quantity, the average total cost is $15, and the price is $13. Therefore, the firm is making a loss of $2 per unit, resulting in a total loss of $10. Thus, the correct answer is C.

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