If a firm operating in monopolistic competition is producing a quantity that generates MC = MR,then the marginal decision rule tells us that profit:
A)is maximized.
B)can be increased by decreasing production.
C)can be increased by decreasing the price.
D)is maximized only if MC = P.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms produce at a point where MC=MR in order to maximize their profits. This is because at that point, each unit costs the same to produce as the revenue it generates, hence maximizing profit. Therefore, if a firm is producing at the point where MC=MR, it is already maximizing its profit. Decreasing production or decreasing price may not result in higher profits as it could decrease revenue and increase costs. Maximizing profit does not require MC to equal P, but rather for the firm to produce the quantity where MC=MR.

If a Firm Operating in Monopolistic Competition Is Producing a Quantity