Question

.A monopolistically competitive firm is operating at a short-run level of output where price is $30, average total cost is $27, marginal cost is $20, and marginal revenue is $25. In the short run this firm should

Answer 1

Based on the marginal cost and the marginal revenue to this monopolistically competitive firm, in the short run the firm should increase the level of output.

Why should the firm increase output?

Firms will maximize their profit if they produce at a point where marginal cost equals marginal revenue.

As the marginal revenue is $25 and the marginal cost is $20, the firm should increase output until both these things are the same.

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