The profit-maximising rule for a firm in a monopolistically competitive market is to select the quantity at which:

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, the firm faces a downward-sloping demand curve, meaning that it can increase revenue by decreasing price. However, there are still constraints on the firm's pricing decisions, such as the need to cover costs. The profit-maximising rule for a firm in such a market is to produce the quantity at which marginal revenue (the additional revenue earned from selling one more unit) is equal to marginal cost (the additional cost of producing one more unit). This is because at any other quantity, the firm could increase profit by adjusting its output. Therefore, choice B is the correct answer.

The Profit-Maximising Rule for a Firm in a Monopolistically Competitive