Asked by karyme catano on May 10, 2024
Verified
Refer to Figure 15.4. Assume The Hand Made Shirt Shop has fixed costs of $150 and is a monopolistically competitive firm. To maximize profits in the short run, this firm should set a price of
A) $18.
B) $22.
C) $23.
D) $25.
Monopolistically Competitive
Refers to a market structure where many firms sell products that are similar but not identical, allowing for some degree of market power.
Fixed Costs
Expenses that do not change with the level of production or sales, such as rent, salaries, or insurance.
Short Run
A period in economics during which at least one input is fixed, limiting the ability of a firm to adjust its production levels.
- Evaluate the most advantageous output and pricing strategies for maximizing profits in monopolistically competitive firms.
Verified Answer
KS
Kamen SentaiMay 16, 2024
Final Answer :
C
Explanation :
To maximize profits, a firm should produce where marginal cost (MC) equals marginal revenue (MR). Without the figure, we can't directly observe the MC and MR intersection, but given the options and the context of monopolistic competition, where firms have some power to set prices above marginal cost, the choice that suggests a price above the typical competitive level (which often aligns with MC) would be indicative of profit maximization in such markets. Among the provided options, $23 (C) is a plausible price point for maximizing profits, assuming it aligns with the MR=MC rule and covers the average total cost at the profit-maximizing quantity, which is a typical characteristic of monopolistically competitive firms aiming to maximize profits in the short run.
Learning Objectives
- Evaluate the most advantageous output and pricing strategies for maximizing profits in monopolistically competitive firms.