To maximize profits,a firm in monopolistic competition should produce such that marginal cost:
A)equals average total cost.
B)is greater than marginal revenue.
C)equals marginal revenue.
D)equals price.

Question

Quizplus · Accepted Answer

In monopolistic competition, the firm has some control over the price and faces a downward sloping demand curve. Thus, the profit-maximizing level of output occurs where marginal revenue (MR) equals marginal cost (MC). This is because if MR is greater than MC, the firm can increase profits by producing more, and if MR is less than MC, the firm can increase profits by producing less. Therefore, the correct choice is C, where MC equals MR.

To Maximize Profits,a Firm in Monopolistic Competition Should Produce Such