Assume price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should
A)continue to produce the same quantity.
B)increase output.
C)decrease output.
D)shut down.

Question

Quizplus · Accepted Answer

Since the firm is producing where MR > MC, it should increase its output to maximize its profits. This is because the additional revenue from selling one more unit exceeds the additional cost of producing one more unit, which increases the overall profit of the firm. Therefore, option B is the best choice.

Assume Price Exceeds Average Variable Cost Over the Relevant Range