The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake for $17. At that production level, ATC is $20, AVC is $15, AFC is $5, and both MR and MC are $8. This firm should
A. decrease output to the point where price equals average total cost.
B. increase output to the point where price equals marginal cost.
C. continue to produce 200 cakes, as price is greater than AVC.
D. shut down and produce zero cakes and just pay fixed costs.
Answer: C
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