The table to the right shows the demand and cost schedules f

The table to the right shows the demand and cost schedules for a monopolistically competitive firm. Total TotalVariable Total What is the best course of action for the firm in the short run? Price Revenue Cost Cost Quantity (Dollars) (Dollars) (Dollars) (Dollars) $22 O S0 $50 20 19 18 17 16 15 O A. It should increase its sales by lowering its price O B. It should stay in business because it covers some 38 54 68 16 31 45 81 of its fixed cost. 109 125 143 162 190 230 280 O C. It should shut down. 75 93 D. It should not cut its price but it should increase its sales by advertising. 98 104 108 110 13 12 140 180 230 10 Click to select your answer

Solution

Answer : In monopolistic Competition the best course of action for the firm in the short run is that it should stay in the business because it covers some of its fixed cost. Monopolistic Competition market firm will survive in short run where they are able to cover its variable cost and price is greater than marginal cost .It should produce the Quantity where they able to cover its cost till 5 units of output.