Figure 11-7
Figure 11-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market.
-Refer to Figure 11-7.Which of the following statements describes the best course of action for the firm depicted in the diagram?

Question

Figure 11-7
  Figure 11-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market.
-Refer to Figure 11-7.Which of the following statements describes the best course of action for the firm depicted in the diagram?

Quizplus · Accepted Answer

The best course of action for the firm is to minimize its losses by producing Qᵧ units and charging a price of P₁. This is because at this output level, the firm's marginal revenue (MR) is equal to its marginal cost (MC), indicating that the firm is producing at the profit-maximizing level. Although the price charged is less than the average total cost (ATC), the firm can still minimize its losses by producing at this output level rather than exiting the industry. Additionally, producing at Qᵧ and charging a price of P₂ or P₀ would result in even greater losses for the firm.

Figure 11-7 Figure 11-7 Shows Short-Run Cost and Demand Curves