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 firm would produce at a higher level of output than its profit-maximising output (Q₀) and would face higher average costs than at its profit-maximising output. Therefore, the firm would suffer an economic loss at Q₁ while it would break even at Q₀.

Figure 9-15 Figure 9-15 Illustrates a Monopolistically Competitive Firm