In monopolistic competition,profit is maximized by producing so that marginal revenue
A) equals price.
B) is negative.
C) equals marginal cost and which are less than price.
D) equals average total cost but not marginal cost.
E) equals marginal cost and equals price.

Question

Quizplus · Accepted Answer

In monopolistic competition, there is a downward sloping demand curve, which means that the price is greater than marginal revenue. Therefore, producing where marginal revenue equals price (as in A and E) would result in a lower quantity produced and hence lower profits. Producing where marginal revenue is negative (B) would result in losses. Producing where marginal cost equals average total cost but not marginal cost (D) would result in a lower profit compared to producing at a level where marginal cost is less than price. Therefore, the best choice is to produce where marginal cost equals marginal revenue and is less than price, which maximizes profit.

In Monopolistic Competition,profit Is Maximized by Producing So That Marginal