Figure 13-3
Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 13-3.Should the firm represented in the diagram continue to stay in business despite its losses?
A) No, it should shut down.
B) Yes, its total revenue covers its variable cost.
C) No, it is not able to cover its fixed cost.
D) Yes, it should increase its revenue by raising its price.

Question

Figure 13-3  
Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 13-3.Should the firm represented in the diagram continue to stay in business despite its losses?
A) No, it should shut down. 
B) Yes, its total revenue covers its variable cost. 
C) No, it is not able to cover its fixed cost. 
D) Yes, it should increase its revenue by raising its price.

Quizplus · Accepted Answer

The firm should continue to stay in business despite its losses because its total revenue at least covers its variable cost. This means that if the firm shuts down, it would still incur its variable cost but would lose out on the revenue it generates. However, the firm should strive to increase its revenue by raising its price or finding ways to reduce costs in the long-run.