For a profit-maximizing firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost.

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In a monopolistically competitive market, firms have some degree of market power which allows them to set prices above marginal cost. When price equals average total cost, the firm is breaking even, but due to downward sloping demand curves, marginal revenue is less than price, implying that marginal cost is below price at the profit-maximizing quantity.

For a Profit-Maximizing Firm in a Monopolistically Competitive Market, When