Question

A monopolistically competitive firm is currently producing the profit-maximizing level of output. If the price of a variable input increases, which of the following will occur?
(A) The firm will increase its output to increase its revenue.
(B) The firm will increase the price of its output by the same amount.
(C) The firm’s average total cost and marginal cost curves will shift upward.
(D) The firm’s average fixed cost will decrease as it decreases production.
(E) The firm’s fixed cost will increase, but its output level will be unaffected.

Answer 1

A monopolistically competitive firm is currently producing the profit-maximizing level of output. If the price of a variable input increases, the firm’s average total cost and marginal cost curves will shift upward.

Option C

Explanation:

Monopolistic competition is a sort of incomplete competition that requires multiple companies to sell a product which is distinct and thus not ideal alternatives.

Monopoly competition is a framework of the market that integrates monopoly aspects and market competition. A dynamic monopoly market basically has freedom of entering and exiting, but businesses can distinguish between their goods.

We get an inelastic curve of demand and therefore can set the prices. Nevertheless, because the right to participate would allow supernormal incentives to more businesses to gain market share, which will result in regular long-term profits .