Figure 16-2. The figure is drawn for a monopolistically competitive firm.

-Refer to Figure 16-2. The firm's profit-maximizing level of output is
A)16 units.
B)24 units.
C)32 units.
D)48 units.

Question

Figure 16-2. The figure is drawn for a monopolistically competitive firm.

-Refer to Figure 16-2. The firm's profit-maximizing level of output is
A)16 units. 
B)24 units. 
C)32 units. 
D)48 units.

Quizplus · Accepted Answer

The profit-maximizing level of output for a monopolistically competitive firm is where marginal revenue (MR) equals marginal cost (MC) and the corresponding price (P) is above the firm's average total cost (ATC). In Figure 16-2, the profit-maximizing output level occurs at the intersection of the MR and MC curves, which is at 24 units. At this level of output, the corresponding price is P1, which is above the firm's ATC. Therefore, the firm can earn positive economic profits in the short run.