In the model of monopolistic competition, compared to a firm with a higher marginal cost, a firm with a lower marginal cost will set a ________ price, produce ________ output, and earn ________ profits.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms have some control over the price they charge, but face downward-sloping demand curves. Firms with lower marginal costs have a lower average total cost curve, which means they can charge a lower price and still make a profit. Thus, they will set a lower price and produce more output, resulting in higher profits than a firm with a higher marginal cost. Therefore, the best option is C.

In the Model of Monopolistic Competition, Compared to a Firm