Question

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should:

Answer 1

Since the marginal revenue ($6) is ≥ than the marginal costs ($5), the firm should increase its output level.

In order to maximize profits, businesses must sell their products or services until MR = MC, therefore this firm should keep increasing its output level until that condition is met.