The monopolistically competitive seller maximizes profit by producing at the point where

Question

Quizplus · Accepted Answer

In monopolistic competition, the seller has some market power to set their price slightly above marginal cost, but they cannot set their price too high because there are close substitutes available. Therefore, the seller will produce where marginal revenue (MR) equals marginal cost (MC) to maximize profit. This is because producing one more unit would increase revenue by MR, but also increase costs by MC. If MR>MC, the seller should produce more, and if MR<MC, the seller should produce less. Thus, the profit-maximizing point is where MR=MC.

The Monopolistically Competitive Seller Maximizes Profit by Producing at the Point