Assume price exceeds average variable cost over the

22) Assume price exceeds average variable cost over the relevant range of demand. If a
monopolistically competitive firm is producing at an output where marginal revenue is $23 and
marginal cost is $19, then to maximize profits the firm should
A) continue to produce the same quantity.
B) increase output.
C) decrease output.
D) shutdown.
Answer: B

Figure 13-5
23) Refer to Figure 13-5. The candy store represented in the diagram is currently selling Q
units of candy at a price of P
a
. Is this candy store maximizing its profit and if it is not, what
would you recommend to the firm?
a
.
D
24) Both monopolistically competitive firms and perfectly competitive firms maximize profits
C
25) A monopolistically competitive firm maximizes profit in the short run by producing where
D
26) A monopolistically competitive firm chooses
A) both the quantity of output to produce and the price at which it will sell its output.
B) the price of the product it sells but market forces determine the quantity it will be able to sell.
C) the quantity of output to produce but the price of the product it sells is determined collectively
by all firms in the industry.
D) the price of the product it sells but the quantity of output to produce is agreed upon by all
firms in the industry.
Answer: B

13.3 What Happens to Profits in the Long Run?
1) A monopolistically competitive industry that earns economic profits in the short run will
B