To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which
A)price equals marginal cost.
B)marginal revenue equals marginal cost.
C)average total cost is minimized.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

A monopolistically competitive firm maximizes profit by producing where marginal revenue equals marginal cost. This is because the firm operates in a market where it has some degree of market power to set its own price, but the price it can charge decreases as it produces more output, so it must balance the additional revenue from selling more with the additional cost of producing more. Choosing where marginal revenue equals marginal cost ensures that the firm is producing the output level that generates the most extra profit for each unit sold.

To Maximize Its Profit, a Monopolistically Competitive Firm Chooses Its