Figure 13-8 Figure 13-8 illustrates a monopolistically competitive firm. -Refer to Figure 13-8.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? A)The firm wants to maximize accounting profit rather than economic profit. B)The firm would suffer an economic loss at Q₁ while it would break even at Q₀. C)The firm's marginal revenue would be negative at Q₁. D)Demand is not sufficient for consumers to buy Q₁.

Question

Quizplus · Accepted Answer

The firm would suffer economic losses if it expanded output beyond Q₀ to Q₁, as average cost would be higher than price at that level of output. Therefore, the firm would prefer to produce at Q₀ where it would break even rather than incurring an economic loss at Q₁.

Figure 13-8 Figure 13-8 Illustrates a Monopolistically Competitive Firm