Marginal Cost Marginal A Revenue Demand 32 16 Figure 14.1 22) You are an economi

Question

Marginal Cost Marginal A Revenue Demand 32 16 Figure 14.1 22) You are an economist working for the monopolistically competitive firm whose marginal cost curve, demand curve, and associated marginal revenue curve are depicted in Figure 14.1. Suppose that the firm is currently charging a price of $7 per unit of output. What would you recommend to the firm? 22) A) Raise the price of output, but also raise your cost of production. B) Lower the price to sell more units. C) Raise the price, but sell fewer units. not enough information to solve

Explanation / Answer

Answer
Option B
Lower the price
the monopolistic competitive firm produces at MR=MC where profit is maximum but here the price is above the equilibrium price
the equilibrium is at
Q=8 and P=$6

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