Question

A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging the highest price it can at $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that a. firms are likely to leave this market in the long run. b. the firm is currently maximizing its profit. c. the firm is earning zero profit. d. the profits of the firm are negative.

Answer 1

Option b (the firm is currently maximizing its profit) is the right approach.

Step-by-step explanation:

Given values are:

• 
  `P=20`
• 
  `Q=20`
• 
  `ATC=18`

Now,

The profit will be:

=
`P* Q-(ATC* Q)`

By substituting the values, we get

=
`20* 20-18* 20`

=
`400-360`

=
`40`

Thus, the above is the correct answer.