Question

Costume jewelry is produced in a monopolistically competitive market. A profit-maximizing producer finds that marginal revenue = marginal cost = $4.50 when output is 700 rings. An economist studying this information can conclude that:

		a.the producer is charging a price of $4.50.
		b.economic profit is $3,150.
		c.the producer charges a price greater than $4.50.
		d.new firms will want to enter.
		e.this producer should produce more than 700 rings

Answer 1

Ans) c is the correct option. the producer charges a price greater than $4.50. In monopolistic competition the demand curve lies above the marginal revenue curve. Price is determined by the demand curve and in thi case price should be greater than marginal revenue curve meaning price is greater than $4.50