A monopolistically competitive firm maximizes profit where
A)price = marginal revenue.
B)price marginal cost.
C)marginal revenue average revenue.
D)total revenue marginal cost.

Question

A monopolistically competitive firm maximizes profit where
A)price = marginal revenue.
B)price > marginal cost.
C)marginal revenue > average revenue.
D)total revenue > marginal cost.

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm maximizes profit where Price > Marginal Cost. This is because the firm sets its price at a level where it can cover the additional cost of producing one more unit of output (i.e., marginal cost) and also generate some profit. However, the firm does not charge a price that is too high, as it will face a lot of competition from other firms in the market. As a result, price is typically lower than in a monopoly but higher than in perfect competition.

A Monopolistically Competitive Firm Maximizes Profit Where