A monopolistically competitive firm will earn maximum profit if it produces at the lowest possible average total cost.

Question

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A monopolistically competitive firm will earn maximum profit if it produces at the point where marginal revenue equals marginal cost, which is not necessarily at the lowest possible average total cost. In fact, in monopolistic competition, firms typically have some degree of market power due to product differentiation, meaning they can charge a higher price than their marginal cost without losing all of their customers. As a result, they may not produce at the lowest possible average total cost.

A Monopolistically Competitive Firm Will Earn Maximum Profit If It