If a monopolistically competitive firm selling an information product engages in marginal cost pricing, it will

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If a monopolistically competitive firm engages in marginal cost pricing, it sets its price equal to its marginal cost in order to maximize profits. However, since the firm has market power but faces competition, its demand curve is downward sloping and its marginal revenue curve lies below it. Therefore, marginal cost pricing will only generate enough revenue to cover variable costs, not fixed costs. As a result, the firm will fail to earn sufficient revenues to cover its fixed costs and may eventually exit the market.

If a Monopolistically Competitive Firm Selling an Information Product Engages