A monopolistically competitive firm operates where: A) MR MC. D) MR + MC = 0.

Question

A monopolistically competitive firm operates where:
A) MR < MC.
B) MR = MC.
C) MR > MC.
D) MR + MC = 0.

Quizplus · Accepted Answer

In monopolistic competition, firms have some market power and can set prices above their marginal cost, resulting in MR being less than price. However, in the long run, other firms can enter the market and offer close substitutes, increasing competition and driving prices down. Therefore, in order for a monopolistically competitive firm to maximize profits in the short run, it should produce where MR = MC, just like a perfectly competitive firm.

A Monopolistically Competitive Firm Operates Where