For a profit-maximising firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, a firm maximizes profit by producing where marginal revenue equals marginal cost. When price equals average total cost, the firm is breaking even and making zero economic profit. To achieve positive economic profit, the firm needs to set a price above marginal cost. Therefore, the statement is true.

For a Profit-Maximising Firm in a Monopolistically Competitive Market, When