Both monopolistically competitive firms and perfectly competitive firms maximise profits
A) by producing where price equals average total cost.
B) by producing where marginal revenue equals average revenue.
C) by producing where marginal revenue is equal to marginal cost.
D) by producing where price equals average variable cost.

Question

Quizplus · Accepted Answer

Both monopolistically competitive firms and perfectly competitive firms face a horizontal demand curve and therefore can only influence their sales by adjusting their price. In order to maximize profits, they should produce at the point where marginal revenue equals marginal cost, as this is where the additional revenue earned from producing an extra unit is equal to the additional cost incurred in producing that extra unit. This ensures that the firm is producing the optimal level of output that maximizes profits.

Both Monopolistically Competitive Firms and Perfectly Competitive Firms Maximise Profits