Question 1
A monopolistically competitive firm that is incurring a loss will shut down if
◦ marginal revenue is less than marginal cost.
◦ revenues are less than variable costs.
◦ price is less than average total cost.
◦ price is less than marginal cost.
Question 2
The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake for $12. At that production level
ATC is $20,
AVC is $15,
AFC is $5, and both
MR and
MC are $8. This firm should
◦ continue to produce 200 cakes, as price is greater than
AFC.
◦ increase output to the point where price equals marginal cost.
◦ decrease output to the point where marginal cost equals average cost.
◦ produce zero cakes and just pay fixed costs.
competitive inhibition
Open-Cake Surgery
Selected Specialty Supplements
Assembling Cakes (6 of 6)
Project Management: Achieving Competitive Advantage, 5th Edition
Lego building blocks birthday cake