in the figure to the right, let D be the demand for a monopolistically competitive firm's output. Its marginal revenue is represented by MR. The firm's average cost of production is AC and its marginal cost of production is MC. A monopolistically competitive firm maximizes profit by producing the quantity where marginal cost (MC) equals marginal revenue (MR) Price is then set according to the demand curve (D), indicated by point in the figure. The full-capacity average cost and quantity occur at the minimum point on the firm's average cost curve, indicated by egoient in the figure A monopolistically competitive firm maximizes its profit where it is operating at less than full capacity or minimum efficient scale, which is the smallest quantity at which the average cost curve reaches its minimum (the bottom of a U-shaped average cost curve). The firm's minimum efficient scale is the quantity at which the firm no longer benefits from economies of scale. Does this result depend upon whether firms produce identical or differentiated products? Why? A monopolistically competitive firm will not produce at lowest average cost OA. regardless of whether it produces a differentiated or homogeneous product because both can have downward-sloping demand curves. OB. regardless of whether it produces a differentiated or homogeneous product because both have U-shaped average cost curves. OC. only if it produces a homogenous product because all firms producing homogenous products have downward sloping demand curvas. OD. regardless of whether it produces a differentiated or homogeneous product because both have horizontal demand curves. OE. only if it produces a differentiated product because all firms producing homogeneous products have horizontal demand curves. G Pu Maximum Qu MR Encient D Q Q, Quantity MC AC C
in the figure to the right, let D be the demand for a monopolistically competitive firm's output. Its marginal revenue is represented by MR. The firm's average cost of production is AC and its marginal cost of production is MC. A monopolistically competitive firm maximizes profit by producing the quantity where marginal cost (MC) equals marginal revenue (MR) Price is then set according to the demand curve (D), indicated by point in the figure. The full-capacity average cost and quantity occur at the minimum point on the firm's average cost curve, indicated by egoient in the figure A monopolistically competitive firm maximizes its profit where it is operating at less than full capacity or minimum efficient scale, which is the smallest quantity at which the average cost curve reaches its minimum (the bottom of a U-shaped average cost curve). The firm's minimum efficient scale is the quantity at which the firm no longer benefits from economies of scale. Does this result depend upon whether firms produce identical or differentiated products? Why? A monopolistically competitive firm will not produce at lowest average cost OA. regardless of whether it produces a differentiated or homogeneous product because both can have downward-sloping demand curves. OB. regardless of whether it produces a differentiated or homogeneous product because both have U-shaped average cost curves. OC. only if it produces a homogenous product because all firms producing homogenous products have downward sloping demand curvas. OD. regardless of whether it produces a differentiated or homogeneous product because both have horizontal demand curves. OE. only if it produces a differentiated product because all firms producing homogeneous products have horizontal demand curves. G Pu Maximum Qu MR Encient D Q Q, Quantity MC AC C
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:In the figure to the right, let D be the demand for a monopolistically competitive firm's output. Its marginal revenue is represented by MR. The firm's average cost
of production is AC and its marginal cost of production is MC.
A monopolistically competitive firm maximizes profit by producing the quantity where marginal cost (MC) equals marginal revenue (MR).
Price is then set according to the demand curve (D), indicated by point maximum in the figure.
The full-capacity average cost and quantity occur at the minimum point on the firm's average cost curve, indicated by @emclent in the figure
A monopolistically competitive firm maximizes its profit where it is operating at less than full capacity or minimum efficient scale, which is the smallest quantity at
which the average cost curve reaches its minimum (the bottom of a U-shaped average cost curve). The firm's minimum efficient scale is the quantity at which the
firm no longer benefits from economies of scale.
Does this result depend upon whether firms produce identical or differentiated products? Why?
A monopolistically competitive firm will not produce at lowest average cost
OA. regardless of whether it produces a differentiated or homogeneous product because both can have downward-sloping demand curves.
OB. regardless of whether it produces a differentiated or homogeneous product because both have U-shaped average cost curves.
OC. only if it produces a homogenous product because all firms producing homogenous products have downward sloping demand curves.
OD. regardless of whether it produces a differentiated or homogeneous product because both have horizontal demand curves.
OE. only if it produces a differentiated product because all firms producing homogeneous products have horizontal demand curves.
Puk
M
Qu
Maximum
MR
cient
D
QE
Q, Quantity
MC
AC
Q
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