A profit-maximising firm in a monopolistically competitive market always operates at:

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms have some market power and are able to differentiate their products. Therefore, they face a downward-sloping demand curve. In order to maximize profits, a firm in this market structure will produce where marginal revenue equals marginal cost. However, this output level will be less than the efficient scale of production, resulting in excess capacity. Therefore, the correct answer is C.

A Profit-Maximising Firm in a Monopolistically Competitive Market Always Operates