A monopolistic competitor finds its profit-maximizing rate of output by

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Quizplus · Accepted Answer

A monopolistic competitor will maximize profit where marginal revenue equals marginal cost. This is because producing additional output will add to revenue but also to costs, and profit is maximized where the additional revenue gained from producing more output equals the additional cost incurred. Equating price and marginal revenue (option D) is generally only applicable for a monopolist, as opposed to a monopolistic competitor. Equating average revenue with average total cost (option B) would result in a break-even level of output, which is not necessarily profit-maximizing. Equating marginal revenue from advertising with the marginal revenue from selling the good (option A) only applies if advertising has a direct impact on demand for the good.

A Monopolistic Competitor Finds Its Profit-Maximizing Rate of Output by