A monopolistically competitive firm is producing at an output level where marginal revenue is greater than marginal cost.This firm should _____ quantity and _____ price to increase profit or reduce losses.

Question

Quizplus · Accepted Answer

A monopolistically competitive firm will have a downward-sloping demand curve, which means that producing more will increase total revenue but at a decreasing rate. Therefore, the firm should increase quantity to increase total revenue, but since marginal revenue is greater than marginal cost, the firm should also increase price to capture some of the additional revenue as profit.

A Monopolistically Competitive Firm Is Producing at an Output Level