A firm in monopolistic competition maximizes its profit by producing at the level at which:
A) MC = ATC.
B) MC = AR.
C) MC = MR.
D) MC = P.

Question

Quizplus · Accepted Answer

In a monopolistic competition market structure, the firm's demand curve is downward sloping, which means that the marginal revenue (MR) curve lies below the average revenue (AR) curve. The profit-maximizing level of output is determined where MC=MR. This choice ensures that the last unit of output produced adds more to revenue than to cost, leading to an increase in profit. Therefore, the correct option is C.

A Firm in Monopolistic Competition Maximizes Its Profit by Producing