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A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should:
1. decrease the level of output.
2. increase the level of output.
3. make no change in the level of output.
4. increase product price.

Respuesta :

Answer:

2. Increase the level of output

Explanation:

A monopolistically competitive firm has Producer's Equilibrium where :                Profit (i.e difference between Total Revenue & Total Expenditure) is maximum .                                                                                                                         This distance is max where: TR & MR are parallel (have equal slopes) ,slope being MR & MC (change in TR , TC with change in quantity) .  

So, Producer Equilibrium : TR - TC is maximum , MR = MC                                                  When MR > MC :  Additional Revenue from additional production is greater than Additional Cost from it , so it is Profitable to Increase production When MC > MR : Additional Revenue from additional production is less than Additional Cost from it , so it is better to Decrease production

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