A monopolistic competitor is currently producing 2,000 units of output; price is

Question

A monopolistic competitor is currently producing 2,000 units of output; price is $100, marginal revenue is $80, average total cost is $130, marginal cost is $60, and average variable cost is $60 The firm should raise price because the firm is losing money keep the price the same because the firm is producing at minimum average variable cost. c. raise price because the last unit of output decreased profit by $30 d. lower price because the next unit of output increases profit by $20 A firm with market power is producing a level of output at which price is $8, marginal revenue is $5, average variable cost is $6, and marginal cost is $10. In order to maximize profit, the firm should 4. decrease price increase price keep price the same increase output. shut down. If firms in a monopolistically competitive industry are making an economic profit, new firms will enter the industry economic profit will fall in future periods. price is higher than marginal cost. all of the above none of the above c. The graph to the right shows the demand and cost conditions facing a price-setting firm. When output is 50 units, what will happen to total revenue if the firm sells another unit of output? 16 ATC Total revenue will increase $13.50 Total revenue will increase $11.00. Total revenue will increase $9.00 Total revenue will increase $6.00 none of the above c. 150

Explanation / Answer

3. A. Raise prices because Firm is losing money. A firm produces output at the point where his marginal revenue is equal to marginal cost. In this case, MR > MC, P >AVC but P < ATC. If the firm will increase price, Q will decrease and also loss.

4. b. increase price. Increase in price will increase MR and make it equal to MC which is very high as compared to MR.

5. d. When the price is above total cost, a firm makes profit and new firms enter into the industry. This decreases profit in the long run due to sales distribution.

6. e. None of the above.

Increase in output by 1 unit will decrease price by almost 1 unit after q = 50. So, revenue will remain almost unchanged.

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