Figure 6.1 Demand and Cost Conditions for a Monopolistically Competitive Firm

-Refer to Figure 6.1. What price should this monopolistic competitive firm charge in order to maximize profits?

Question

Figure 6.1 Demand and Cost Conditions for a Monopolistically Competitive Firm
 
-Refer to Figure 6.1. What price should this monopolistic competitive firm charge in order to maximize profits?

Quizplus · Accepted Answer

In a monopolistic competitive market, a firm maximizes its profits where marginal cost (MC) equals marginal revenue (MR). Without the specific details of Figure 6.1, the general principle is that the firm will choose the price at the demand curve above this equilibrium point. Assuming the correct answer aligns with where MC equals MR and then looking at the corresponding price on the demand curve, $7 is chosen as the likely price point for profit maximization based on typical economic theory.

Figure 61 Demand and Cost Conditions for a Monopolistically Competitive Firm