When a firm maximizes its profit,which of the following is correct for firms in monopolistic competition and perfect competition?
A) P = MC for both types of firms.
B) P = MR = MC for firms in perfect competition, and P MR = MC for firms in monopolistic competition.
C) MR = MC for firms in perfect competition and MR MC for firms in monopolistic competition.
D) P MR = MC for firms in both perfect competition and monopolistic competition.
E) P = ATC always for firms in both perfect competition and monopolistic competition.

Question

When a firm maximizes its profit,which of the following is correct for firms in monopolistic competition and perfect competition?
A) P = MC for both types of firms.
B) P = MR = MC for firms in perfect competition, and P > MR = MC for firms in monopolistic competition.
C) MR = MC for firms in perfect competition and MR > MC for firms in monopolistic competition.
D) P > MR = MC for firms in both perfect competition and monopolistic competition.
E) P = ATC always for firms in both perfect competition and monopolistic competition.

Quizplus · Accepted Answer

In both monopolistic competition and perfect competition, firms maximize profit where MR = MC. However, in perfect competition, due to the nature of the market, P = MR, leading to P = MR = MC. In monopolistic competition, firms have some degree of market power, allowing them to set prices above marginal cost, so P > MR = MC.

When a Firm Maximizes Its Profit,which of the Following Is