To maximize its profit, a monopolistically competitive firm produces at the output level at which
A)its price elasticity of demand equals one.
B)MR = MC.
C)its D curve is tangent to its ATC curve.
D)MR = AVC.

Question

Quizplus · Accepted Answer

In monopolistic competition, a firm maximizes profit at the point where MR (marginal revenue) equals MC (marginal cost). Therefore, choice B is correct. Choice A is incorrect because a price elasticity of demand equaling one only means the firm is maximizing revenue, not necessarily profit. Choice C is incorrect because the tangent point between the demand curve and ATC curve only indicates the breakeven point, not profit maximization. Choice D is incorrect because MR must equal MC, not AVC, for profit maximization.

To Maximize Its Profit, a Monopolistically Competitive Firm Produces at the Output