Use the following for questions 22-31.
Exhibit: Profit Maximization in Monopolistic Competition

-(Exhibit: Profit Maximization in Monopolistic Competition) A firm in monopolistic competition will maximize profits by producing the level of output where:
A) P = MC
B) MR = MC
C) P = MR
D) price minus ATC (i.e., economic profit per unit) is the largest.

Question

Use the following for questions 22-31.
Exhibit: Profit Maximization in Monopolistic Competition
 
-(Exhibit: Profit Maximization in Monopolistic Competition) A firm in monopolistic competition will maximize profits by producing the level of output where:
A) P = MC 
B) MR = MC 
C) P = MR 
D) price minus ATC (i.e., economic profit per unit) is the largest.

Quizplus · Accepted Answer

In monopolistic competition, the firm produces where marginal revenue (MR) is equal to marginal cost (MC) in order to maximize profits. This is because, at any other level of output, increasing or decreasing production would cause MR to be higher or lower than MC, leading to lower profits. Therefore, option B is the correct answer.

Use the Following for Questions 22-31