If a firm under monopolistic competition is producing a quantity that generates MC = MR, then the marginal decision rule tells us that profit:
A) is maximized.
B) can be increased by decreasing production.
C) can be increased by decreasing the price.
D) is maximized only if MC = P.

Question

Quizplus · Accepted Answer

When a firm under monopolistic competition is producing a quantity that generates MC=MR, profit is maximized because this condition is equivalent to producing up to the point where the marginal revenue equals the marginal cost. This is the point where profits are maximized. Therefore, option A is the best choice. Option B is incorrect because decreasing production would lower total revenue and profit. Option C is incorrect because decreasing price could increase quantity demanded but would lower unit profit. Option D is incorrect because MC= P is not necessary for profit maximization in monopolistic competition.

If a Firm Under Monopolistic Competition Is Producing a Quantity