The figure given below shows revenue and cost curves of a monopolistically competitive firm.Figure: 12.1
In the figure,
MR: Marginal revenue curve
ATC: Average total cost curve
AVC: Average variable cost curve
MC: Marginal cost curve
-A firm under monopolistic competition reaches equilibrium in the short run at a point where:
A)price equals average variable cost.
B)marginal revenue equals rising marginal cost.
C)price equals marginal cost.
D)marginal revenue equals average revenue.
E)the firm's marginal-cost curve intersects its marginal-revenue curve from above.

Question

The figure given below shows revenue and cost curves of a monopolistically competitive firm.Figure: 12.1
  In the figure,
MR: Marginal revenue curve
ATC: Average total cost curve
AVC: Average variable cost curve
MC: Marginal cost curve
-A firm under monopolistic competition reaches equilibrium in the short run at a point where:
A)price equals average variable cost. 
B)marginal revenue equals rising marginal cost. 
C)price equals marginal cost. 
D)marginal revenue equals average revenue. 
E)the firm's marginal-cost curve intersects its marginal-revenue curve from above.

Quizplus · Accepted Answer

In monopolistically competitive market, the firm maximizes profit at the point where marginal revenue equals marginal cost. In the given figure, this occurs at point E where the marginal revenue curve intersects the marginal cost curve. At this point, the firm produces and sells output q and charges price P. However, since the market is monopolistically competitive, the firm's demand curve is downward sloping and hence the price charged is greater than the marginal cost of production. Therefore, the choice that correctly identifies this point of equilibrium is option B as it states that marginal revenue equals rising marginal cost at the equilibrium point.

The Figure Given Below Shows Revenue and Cost Curves of a Monopolistically