In the short run, a firm in a monopolistic competition will produce the amount of output where its

Question

Quizplus · Accepted Answer

In a monopolistic competition, firms have some degree of market power and can influence their price by adjusting their level of output. In the short run, a firm will produce the output level where its marginal revenue equals its marginal cost (MR=MC) to maximize profit. However, since the firm faces a downward sloping demand curve, it must also take into account the price elasticity of demand for its product when setting its price. Therefore, the firm will set its price according to the demand for that output level, which is determined by the intersection of its marginal cost curve and the demand curve at that output level. Thus, choice A is the best answer.

In the Short Run, a Firm in a Monopolistic Competition