Figure 9.15 Figure 9.15 illustrates a monopolistically competitive firm.
-Refer to Figure 9.15.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?

Question

Figure 9.15

Figure 9.15 illustrates a monopolistically competitive firm.
-Refer to Figure 9.15.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?

Quizplus · Accepted Answer

At Q₁, the average cost of production is higher than the price. This means that the firm would suffer an economic loss at this level of output. In contrast, at Q₀, the firm is producing at the point where price equals average cost, which means it is breaking even. Therefore, the firm would not expand its output to Q₁ as it would not be profitable.

Figure 915 Figure 9