Pie-Oh-My, a monopolistically competitive firm, is producing 80 ...

[jerry coleman]

Question 1

Pie-Oh-My, a monopolistically competitive firm, is baking 80 gourmet pies per day and selling each pie for $25. At that production level 
ATC is $40, 
AVC is $30, 
AFC is $10, and both 
MR and 
MC are $16. This firm should

◦ continue to produce 80 pies, 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 pies and pay fixed costs.

Question 2

Pie-Oh-My, a monopolistically competitive firm, is producing 80 gourmet pies per day and selling each pie for $32. At that production level 
ATC is $40, 
AVC is $30, 
AFC is $10, and both 
MR and 
MC are $16. In the short run, this firm should

◦ continue to produce 80 pies, as price is greater than 
AVC.
◦ increase output to the point where price equals marginal cost.
◦ decrease output to the point where price equals average total cost.
◦ shutdown and produce zero pies and pay fixed costs.

[l.stuut]

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[jerry coleman]

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