Suppose a Monopolistically Competitive Firm Is Earning an Economic Profit

question 155

Multiple Choice

Suppose a monopolistically competitive firm is earning an economic profit.The marginal revenue from selling an additional unit is $30,and the marginal cost of producing that additional unit is $23.The firm should _____

• A)change neither its price nor its output level.
• B)reduce its price and increase its output level.
• C)increase its price and reduce its output level.
• D)reduce both its price and its output level.
• E)increase both its price and its output level.

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Definitions:

Cost-to-retail Percentage

A ratio used in inventory valuation that compares the cost of inventory to its retail price.

Freight-in Charges

Costs associated with transporting goods from the supplier to the buyer's location.

Sales Returns

Transactions where customers return previously purchased merchandise, leading to a reduction in the seller's revenue.

Average Cost Retail Inventory Method

A method used in retail to estimate ending inventory value by combining the cost-to-retail price ratio with the retail price of goods available for sale.