In the short run, in equilibrium, firms that operate in a monopolistically competitive market face a downward sloping demand curve and will charge a price where _____ and ______.
A) quantity produced is maximized; costs are minimized
B) sales revenue is maximized; costs are falling
C) MR = MC; P average cost
D) average costs are rising; sales are rising

Question

In the short run, in equilibrium, firms that operate in a monopolistically competitive market face a downward sloping demand curve and will charge a price where _____ and ______.
A) quantity produced is maximized; costs are minimized
B) sales revenue is maximized; costs are falling
C) MR = MC; P > average cost
D) average costs are rising; sales are rising

Quizplus · Accepted Answer

In the short run, firms in a monopolistically competitive market will produce at a quantity where MR = MC to maximize profits. However, due to the presence of differentiated products, they will charge a price higher than the average cost, resulting in a markup over marginal cost. Therefore, the correct answer is C, where the firm charges a price where MR = MC and the price is greater than average cost (P > AC).

In the Short Run, in Equilibrium, Firms That Operate in a Monopolistically