Question

Assume a monopolistically competitive firm faces the following situation: P $20, output 13,000 units, MC 16 ATC $22, AVC = $15, and MR = $16 which statement BEST describes the firm's situation?
1. The firm would maximize its profits by decreasing its output
2. The firm is earning a normal profit, indicating that the market is in a long-run equilibrium
3. The firm would minimize its losses by increasing its output
4. The firm is minimizing its losses.

Answer 1

Answer:

4. The firm is minimizing its losses OR maximizing its Profit

Explanation:

Assume a monopolistically competitive firm faces the following situation:

P $20, output 13,000 units, MC 16 ATC $22, AVC = $15, and MR = $16 which statement BEST describes the firm's situation?

The statement that best describes the firm situation is that it is maximizing its profit or minimizing its losses because profit is maximized where Marginal cost is equal to marginal revenue, and that is the case of this firm. MC=MR at $16.

In conclusion, since the firm is maximizing profit, it needs not change anything but to keep producing at this level of output and price.