Firms in a monopolistically competitive market will produce where the difference between TR and TC are maximized.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, the firms aim to differentiate their products from their competitors to attract consumers. As a result, the demand curve for each firm is downward-sloping, but not perfectly elastic. Therefore, the firms will produce where the difference between total revenue (TR) and total cost (TC) is maximized, which occurs at the point where marginal cost (MC) equals marginal revenue (MR). This is because producing more than this point will result in higher costs than revenue, while producing less than this point will result in lower revenue than costs.

Firms in a Monopolistically Competitive Market Will Produce Where the Difference