A firm in monopolistic competition maximizes its profit by producing at a quantity where:
A)MC = ATC.
B)MC = AR.
C)MC = MR.
D)MC = P.

Question

Quizplus · Accepted Answer

In monopolistic competition, the firm faces a downward-sloping demand curve, meaning that in order to sell one more unit of output, the firm must lower the price of all units sold. Therefore, the marginal revenue earned by the firm is less than the price of the good, and the firm will choose to produce where MC=MR in order to maximize profit.

A Firm in Monopolistic Competition Maximizes Its Profit by Producing