If a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run:
A)price is less than average total costs.
B)price is less than marginal cost.
C)marginal revenue is less than marginal cost.
D)marginal revenue equals marginal cost.

Question

Quizplus · Accepted Answer

If the firm is earning an economic profit in the short run, this means that price is greater than average total cost. In a monopolistically competitive market, the firm maximizes its profit by producing at the point where marginal revenue equals marginal cost. Therefore, the answer is D - marginal revenue equals marginal cost.

If a Monopolistically Competitive Firm Is Producing the Profit-Maximizing Level