A monopolistically competitive firm maximizes profits in the short run

Question

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm maximizes profits by producing the quantity where marginal revenue (MR) is equal to marginal cost (MC) and then charging a price based on the demand curve for that output level. This is because in the short run, the firm faces fixed costs and can only adjust its variable costs, which means that it can increase profits by producing at a point where its marginal revenue covers its variable costs and contributes to paying down its fixed costs. Therefore, the best choice is E, where the firm equates MC with MR.

A Monopolistically Competitive Firm Maximizes Profits in the Short Run