If a monopolistically competitive firm can earn a profit, it will adjust production until
A)MR AVC
B)MR = ATC
C)MC MR
D)MR = AR
E)MR = MC

Question

If a monopolistically competitive firm can earn a profit, it will adjust production until
A)MR > AVC
B)MR = ATC
C)MC > MR
D)MR = AR
E)MR = MC

Quizplus · Accepted Answer

In monopolistic competition, firms can earn profits in the short run but not in the long run due to the presence of low barriers to entry that attract new competitors to the market. To maximize profits in the short run, the firm will produce at the point where marginal revenue (MR) equals marginal cost (MC) because this is where the firm will earn the greatest amount of profit. Therefore, the correct choice is E, which states that the profit-maximizing firm will adjust production until MR equals MC.

If a Monopolistically Competitive Firm Can Earn a Profit, It