To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which

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In monopolistic competition, firms have some market power to set their own prices, but they still face a downward-sloping demand curve. As such, they must balance the benefits of producing and selling one more unit (marginal revenue) with the costs of producing that unit (marginal cost). Therefore, the profit-maximizing output level occurs where marginal revenue equals marginal cost (MR = MC). This is because producing one more unit beyond this point would mean that the cost of producing that unit exceeds the additional revenue that it brings in. Thus, a monopolistically competitive firm will choose its output level where MR = MC to maximize its profit.

To Maximize Its Profit, a Monopolistically Competitive Firm Chooses Its