The Diagram Below Shows Demand and Cost Curves for a Monopolistically

question 12

Multiple Choice

The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11-3
-Refer to Figure 11-3.In the long run,a monopolistically competitive firm will

• A)make profit by producing at Q2 and charging price P1.
• B)lose money by producing at Q1 and charging price P2.
• C)maximize profit and make positive profit by producing at Q1 and charging price P1.
• D)maximize profit but only break even by producing at Q1 and charging price P1.
• E)maximize profit by producing output level Q2,the minimum point of its LRAC curve.

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Definitions:

LIFO

The Last In, First Out approach to inventory valuation prioritizes the sale of the most recently manufactured items before older stock.

Tax Advantage

A tax advantage refers to the economic bonus that applies to certain accounts or investments that are exempt from taxation, or taxed at a lower rate.

Rising Prices

A situation where the general level of prices for goods and services increases over a period, indicative of inflation.

LIFO Liquidation

The process of reducing inventory using the Last-In, First-Out (LIFO) method, which can impact the cost of goods sold and taxes during times of inflation.