The profit-maximising rule for a monopolistically competitive firm is to select the quantity at which
A)marginal revenue equals marginal cost.
B)average revenue exceeds marginal cost by the greatest amount.
C)price equals marginal cost.
D)average revenue equals average total cost.

Question

Quizplus · Accepted Answer

A monopolistically competitive firm will maximize profit by producing the quantity at which marginal revenue equals marginal cost. This is because monopolistically competitive firms have downward-sloping demand curves, so producing more will lower the price and decrease marginal revenue, while producing less will increase marginal cost. Therefore, selecting the quantity where MR=MC will result in the highest profit for the firm.

The Profit-Maximising Rule for a Monopolistically Competitive Firm Is to Select