A. It is greater than MC. B. It occurs at the quantity where MC? = D. C. It is g

Question

A. It is greater than MC.

B. It occurs at the quantity where MC? = D.

C. It is greater than MR.

D. It occurs along the elastic part of the demand curve.

E. It occurs at the quantity where MR? = MC.

2. In a monopolistically competitive? market, a firm earning negative economic profit in the short run will? ____________.

A.shut down to avoid losses

B.produce only if price is greater than marginal cost.

C. shut down only if price is less than average variable costshut down only if price is less than average variable cost.

D.produce when revenue is positive

Explanation / Answer

1. Options A, C, D and E are correct.

The profit maximising level of output is attained where the marginal revenue equals marginal cost. The corresponding point in the demand curve gives the maximising price. Now this price is greater than the marginal cost ($2), marginal revenue ($2), and finally the elastic portion of the supply curve as monopolist never produces on the inelastic portion of the demand curve.

2. Option C is correct.

A firm would produce in short run only if it covers the average variable cost. If it's unable to cover it's AVC, then the firm would rather shut down.

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