Firms in a monopolistically competitive market structure maximize their profit by producing an output where:
A) price equals average total cost.
B) marginal cost equals average total cost.
C) marginal cost equals price.
D) marginal revenue equals marginal cost.

Question

Quizplus · Accepted Answer

Firms in monopolistically competitive markets maximize their profit where marginal cost equals marginal revenue. This is because in such markets, firms have some degree of market power to influence their prices, and maximizing profit requires balancing the additional revenue earned from selling one more unit of output (marginal revenue) against the additional cost of producing that unit (marginal cost).

Firms in a Monopolistically Competitive Market Structure Maximize Their Profit