A profit-maximizing firm in a monopolistically competitive market generally prices its product at some markup over marginal cost.

Question

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In a monopolistically competitive market, firms have some market power which allows them to set prices higher than marginal cost in order to maximize profits. However, they cannot charge too high of a price or they risk losing customers to competitors. Therefore, firms in a monopolistically competitive market generally price their product at some markup over marginal cost.

A Profit-Maximizing Firm in a Monopolistically Competitive Market Generally Prices