In a monopolistically competitive market, the rule for maximizing profit is to set MR = MC, which means
A) price is higher than marginal revenue.
B) price is equal to marginal revenue.
C) price is equal to marginal cost.
D) price is lower than marginal revenue.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms have some degree of market power which allows them to set prices above marginal revenue. This is because the demand curve they face is downward sloping, so to sell more units, they must lower the price, which makes the marginal revenue less than the price.

In a Monopolistically Competitive Market, the Rule for Maximizing Profit