A monopolistically competitive firm has the following cost structure:

The firm faces the following demand curve:

To maximize profit (or minimize losses),the firm will produce

Question

A monopolistically competitive firm has the following cost structure:

The firm faces the following demand curve:

To maximize profit (or minimize losses),the firm will produce

Quizplus · Accepted Answer

To maximize profit, a firm in a monopolistically competitive market should produce at the point where marginal revenue equals marginal cost. The marginal revenue and marginal cost curves intersect at a quantity of 3 units in this case. At this level of output, the firm's price is $17 and its average total cost is $17. Therefore, the firm will break even, neither making a profit nor incurring a loss. Any output level higher or lower than 3 units would lead to losses for the firm.

A Monopolistically Competitive Firm Has the Following Cost Structure