Question

Question Completion Status: QUESTION 12 CATC MCATC (A) (B) (C) Price, MC ATC Price, MC Price, cost cost cost T F H U G R SXT MR D MR D MR D 0 Quantity 0 Quantity o Quantity (per period) (per period) (per period) The figures above show firms in a monopolistically competitive market. In panel there is zero economic profit at price -Р W N Et OAF OAG OBH Oci QUESTION 13

Answer 1

Ans. Option c

In a monopolistic competition, profit maximizing level of output is determined where marginal revenue equals to marginal cost and price corresponding to this price is given by the demand curve.
a) Thus, profit maximizing level of output and price is represented at point L in figure 1, with price F and average total cost G. Hence, price is greater than the average total cost which means that the firm is earning a positive profit.

b) Thus, profit maximizing level of output and price in figure 2 is represented by point Q where price and average total cost are equal to H. Hence, profit is zero as price equals average total cost.

c) Thus, profit maximizing level of output and price in figure 3 is represented by point V where price is J less than the average total cost, I. Hence, firm is incurring a loss.

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