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You are hired as a consultant to a monopolistically competitive firm. The firm reports the following information about its price, marginal cost, and average total cost. Can the firm possibly be maximizing profit? If not, what should it do to increase profit? If the firm is maximizing profit, is the market in a long-run equilibrium? If not, what will happen to restore long-run equilibrium? a. P < MC, P > ATC b. P > MC, P < ATC c. P = MC, P > ATC d. P > MC, P = ATC

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Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126

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BuyFindarrow_forward

Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126
Chapter 16, Problem 5PA
Textbook Problem
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You are hired as a consultant to a monopolistically competitive firm. The firm reports the following information about its price, marginal cost, and average total cost. Can the firm possibly be maximizing profit? If not, what should it do to increase profit? If the firm is maximizing profit, is the market in a long-run equilibrium? If not, what will happen to restore long-run equilibrium?

a. P < MC, P > ATC

b. P > MC, P < ATC

c. P = MC, P > ATC

d. P > MC, P = ATC

Subpart (a):

To determine
Monopolistic Competition and profit maximization.

Explanation of Solution

In a monopolistically competitive firm, price is greater than marginal revenue. Therefore, if the price is less than margi...

Subpart (b):

To determine
Monopolistic Competition and profit maximization.

Subpart (c):

To determine
Monopolistic Competition and profit maximization.

Subpart (d):

To determine
Monopolistic Competition and profit maximization.

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