A profit-maximizing monopolistically competitive firm will expand output to the point where:
A) total revenue equals total cost.
B) marginal revenue equals marginal cost.
C) price equals average total cost.
D) price equals marginal cost.

Question

Quizplus · Accepted Answer

A profit-maximizing monopolistically competitive firm will expand output to the point where marginal revenue equals marginal cost. This is because in a monopolistically competitive market, the firm has some control over the price it charges, but faces a downward sloping demand curve. Therefore, in order to maximize profits, the firm must produce where marginal revenue equals marginal cost. This will ensure that the additional revenue generated from producing one more unit is equal to the additional cost of producing one more unit.

A Profit-Maximizing Monopolistically Competitive Firm Will Expand Output to the Point