Assume a monopolistically competitive firm encounters a decrease in average variable cost at all output levels.We would expect:
A)The price to fall and output to rise
B)The price to fall and output to fall
C)The price to rise and output to rise
D)The price to rise and output to fall

Question

​Assume a monopolistically competitive firm encounters a decrease in average variable cost at all output levels.We would expect:
A)​The price to fall and output to rise
B)​The price to fall and output to fall
C)​The price to rise and output to rise
D)​The price to rise and output to fall

Quizplus · Accepted Answer

If a firm experiences a decrease in average variable cost at all output levels, it means they can produce their goods at a lower cost. This allows them to lower their prices while still maintaining a profit, which will increase the quantity demanded and therefore increase output. Therefore, we would expect the price to fall and output to rise.

​Assume a Monopolistically Competitive Firm Encounters a Decrease in Average

Assume a Monopolistically Competitive Firm Encounters a Decrease in Average