The profit-maximising rule for a monopolistically competitive firm is
A)to produce a quantity that maximises market share
B)to produce a quantity that maximises total revenue
C)to produce a quantity such that marginal revenue equals marginal cost
D)to produce a quantity such that price equals marginal cost

Question

Quizplus · Accepted Answer

The profit-maximizing rule for a monopolistically competitive firm is to produce a quantity such that marginal revenue equals marginal cost. This is because in a monopolistically competitive market, the firm has some degree of market power, which means that it can influence the price of its product. However, as the firm increases the quantity produced and sold, its marginal revenue starts to decline, because it needs to lower its price to attract more customers. So, the firm should continue to produce more until marginal cost equals marginal revenue, which is where it can maximize its profits.

The Profit-Maximising Rule for a Monopolistically Competitive Firm Is