Suppose a monopolistically competitive firm is earning an economic profit.The marginal revenue from selling an additional unit is $30,and the marginal cost of producing that additional unit is $23.The firm should _____

Question

Quizplus · Accepted Answer

In order to maximize profits, a firm in monopolistic competition should produce the quantity where marginal revenue (MR) equals marginal cost (MC), and charge a price based on the demand for that quantity. In this scenario, the marginal revenue is greater than the marginal cost ($30 > $23), indicating that the firm could increase its profits by increasing its output level. Therefore, the firm should reduce its price (to attract more customers) and increase its output level (to sell more units and generate more revenue). Choice B is the best answer.

Suppose a Monopolistically Competitive Firm Is Earning an Economic Profit