Asked by Shahin Manjra on May 28, 2024
Verified
If a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run:
A) price is less than average total costs.
B) price is less than marginal cost.
C) marginal revenue is less than marginal cost.
D) marginal revenue equals marginal cost.
Marginal Revenue
The additional revenue that a firm receives from selling one more unit of a good or service.
Economic Profit
The discrepancy between gross revenue and comprehensive costs, inclusive of both apparent and implied expenses.
Marginal Cost
The supplementary cost associated with manufacturing one more unit of a good or service.
- Scrutinize the consequences of market control on setting prices and deciding on output levels in monopolistic competition.
- Gain an understanding of the principle that maximizes gains (MC = MR) and its implementation in diverse market configurations.
Verified Answer
CH
Carlos HazardJun 01, 2024
Final Answer :
D
Explanation :
If the firm is earning an economic profit in the short run, this means that price is greater than average total cost. In a monopolistically competitive market, the firm maximizes its profit by producing at the point where marginal revenue equals marginal cost. Therefore, the answer is D - marginal revenue equals marginal cost.
Learning Objectives
- Scrutinize the consequences of market control on setting prices and deciding on output levels in monopolistic competition.
- Gain an understanding of the principle that maximizes gains (MC = MR) and its implementation in diverse market configurations.