In the short run, monopolistically competitive firms find their profit-maximizing quantity by setting price equal to marginal cost.

Question

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Monopolistically competitive firms do not set price equal to marginal cost in the short run. They set price above marginal cost in order to differentiate their product and capture a share of the market. However, in the long run, firms may adjust their prices to equal marginal cost as new firms enter and competition increases.

In the Short Run, Monopolistically Competitive Firms Find Their Profit-Maximizing