What is the profit-maximising rule for a monopolistically competitive firm?
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

In monopolistic competition, firms have some degree of market power, meaning they can influence the price of their product. However, they also face competition and have to take into account the reactions of other firms in the market. The profit-maximising rule for a monopolistically competitive firm is to produce at the quantity where marginal revenue equals marginal cost. This is because profit is maximised where the difference between revenue and cost is greatest, and at the point where marginal revenue equals marginal cost, the increase in revenue from producing one more unit is exactly equal to the increase in cost. This means that producing any more or less than this quantity would result in lower profits.

What Is the Profit-Maximising Rule for a Monopolistically Competitive Firm