A monopolistic competitor is currently producing 2,000 units of output; price is

Question

A monopolistic competitor is currently producing 2,000 units of output; price is $100, marginal revenue is $80, average total cost is $130, marginal cost is $60, and average variable cost is $60. The firm should

raise price because the firm is losing money.

keep the price the same because the firm is producing at minimum average variable cost.

raise price because the last unit of output decreased profit by $30.

lower price because the next unit of output increases profit by $20.

raise price because the firm is losing money.

keep the price the same because the firm is producing at minimum average variable cost.

raise price because the last unit of output decreased profit by $30.

lower price because the next unit of output increases profit by $20.

Explanation / Answer

B. keep the price the same because the firm is producing at minimum average variable cost.

Since Marginal Cost = variable cost, the fixed cost is no longer a concern. However, if the price increases, the demand could drop.

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