The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which
A)marginal revenue is equal to marginal cost.
B)average total cost is equal to marginal revenue.
C)average total cost is equal to price.
D)average revenue exceeds average total cost.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, the firm has some control over the price it charges, but faces competition from other firms producing similar products. Therefore, the profit-maximizing rule is to produce the quantity where marginal revenue equals marginal cost, because at this point the firm is producing an additional unit of output at the lowest possible cost and earning the most profit possible. Choices B and C are incorrect because they do not take into account the relationship between marginal revenue and marginal cost, which is crucial in determining optimal output. Choice D is incorrect because the firm should aim to maximize profit, not just have average revenue exceeding average total cost.

The Profit-Maximizing Rule for a Firm in a Monopolistically Competitive