If a monopolistically competitive firms marginal cost increa

If a monopolistically competitive firm\'s marginal cost increases, then in order to max-
imize profits, the firm will:
(A) reduce output and increase price.
(B) increase output and decrease price.
(C) increase both output and price.
(D) reduce both output and price.

Solution

If a monopolistically competitive firm\'s marginal cost increases, then in order to maximize profits, the firm will reduce output and increases price because in monopolistics competition their are too manny producers which produces differentiated products which are not exactly the substututes. So thats why firm\'s can reduce the productivity and increase the price beacsue consumers can not switch to the other firm\'s.