Price and cost (dollars per unit) 120 MC 100 ATC 80 60 D MR 60 80 100 120 140 Quantity (units) The figure above shows a firm operating in a monopolistically competitive market. If nothing else changes, this firm O should increase production to 120 units in order to reduce its cost. O should stay open but decrease production below 80 units in order to reduce its cost. O will exit the market because it is currently incurring an economic loss in the short run. O will produce 100 units to eliminate the deadweight loss. 40 20

Price and cost (dollars per unit) 120 MC 100 ATC 80 60 D MR 60 80 100 120 140 Quantity (units) The figure above shows a firm operating in a monopolistically competitive market. If nothing else changes, this firm O should increase production to 120 units in order to reduce its cost. O should stay open but decrease production below 80 units in order to reduce its cost. O will exit the market because it is currently incurring an economic loss in the short run. O will produce 100 units to eliminate the deadweight loss. 40 20

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 1.1P

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In the above figure, the profit-maximizing output and price for this monopolistically competitive firm are