A monopolistically competitive firm will maximize profits by producing at the point where MC = MR and charging a price higher than AVC.

Question

Quizplus · Accepted Answer

A monopolistically competitive firm will produce where marginal cost (MC) equals marginal revenue (MR) to maximize profits. Additionally, because the firm has some degree of market power and faces a downward sloping demand curve, it can charge a price above its average variable cost (AVC). However, the price charged may not necessarily be higher than all of its costs, such as fixed costs.

A Monopolistically Competitive Firm Will Maximize Profits by Producing at the Point