Question

Assume price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should A) shut down. B) continue to produce the same quantity. C) decrease output. D) increase output.

Answer 1

Answer:D) increase output.

Step-by-step explanation:

The marginal cost for production and marginal revenue are measures that businesses use in determining the amount of output and the price of a product that will enable them to maximize profits.

When the marginal revenues are greater than the marginal cost of production, then the firm is making profit per unit and should increase its production so as to make more output until profit is attained. When Marginal Revenue are lower or less than the marginal cost of production, then the firm is making a loss per unit and should decrease its production.

Here, competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should increase output .