Pie-Oh-My, a Monopolistically Competitive Firm, Is Producing 80 Gourmet Pies

question 91

Multiple Choice

Pie-Oh-My, a monopolistically competitive firm, is producing 80 gourmet pies per day and selling each pie for $32. At that production level ATC is $40, AVC is $30, AFC is $10, and both MR and MC are $16. In the short run, this firm should

• A) continue to produce 80 pies, as price is greater than AVC.
• B) increase output to the point where price equals marginal cost.
• C) decrease output to the point where price equals average total cost.
• D) shutdown and produce zero pies and pay fixed costs.

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Definitions:

Operating Income

Income generated from normal business operations, excluding revenues and expenses from non-operating activities.

Income Tax Rate

The proportion of income that is subject to taxation for a person or a company.

Consolidated Income Tax Return

A single income tax return filed for a group of related corporations, consolidating their tax liabilities.

Ownership

The state or fact of legal possession and control over property, which includes the rights to use, sell, or lease it.