If a firm operating in monopolistic competition is producing a quantity that generates MC

Question

If a firm operating in monopolistic competition is producing a quantity that generates MC < MR,then the marginal decision rule tells us that profit:
A)can be increased by increasing production.
B)can be increased by decreasing production.
C)can be increased by increasing the price.
D)is maximized only if MC = P.

Quizplus · Accepted Answer

In monopolistic competition, the firm produces where MC=MR in order to maximize profits. If the firm is producing at a quantity where MC<MR, then it means it can increase profits by producing more until MC=MR is reached. Therefore, the best choice is to increase production (choice A).

If a Firm Operating in Monopolistic Competition Is Producing a Quantity