A monopolistic competitor wishing to maximize profit will select a quantity wher

Question

A monopolistic competitor wishing to maximize profit will select a quantity where: O O marginal revenue equals marginal cost marginal cost equals demand marginal revenue equals average cost marginal cost equals average cost O If a firm is producing a quantity where marginal revenue exceeds marginal costs, the firm should existing levels of production, in order to O O O O expand; decrease total costs decrease; increase total revenue expand; increase profitability decrease; increase profitability If a firm is producing a quantity where marginal cost exceeds marginal revenue, the firm should existing levels of production, in order to__. O O O O decrease; increase profitability expand ; decrease total costs decrease; increase total revenue expand; increase profitability

Explanation / Answer

Q1. A monopolistic firm maximizes its profit when it produces that level of output at which marginal cost equals marginal revenue. So, if a monopolistic competitor wants to maximize his profit then he must choose a quantity at which marginal revenue equals marginal cost.

Hence, the correct answer is option (1).

Q2. If firm is producing a quantity at which marginal revenue exceeds the marginal cost then firm must increase its level of production as this will increase the profit of the firm. It should continue increasing its production up to the level at which marginal cost equals marginal revenue because at this level its profit will be at maximum.

Hence, the correct answer is option (3).

Q3. If a firm is producing a quantity where marginal cost exceeds marginal revenue then it must decrease its production as such decrease will bring a fall in marginal cost and increase in marginal revenue thereby increasing the profit of firm. It should continue decreasing its production up to the level at which marginal cost equals marginal revenue because at this level its profit will be at maximum.

Hence, the correct answer is option (1).

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