In the short run, a firm operating in a monopolistically competitive market
A)produces an efficient output level.
B)chooses the maximum price to maximize profits.
C)produces where marginal cost is minimized.
D)chooses a price that exceeds marginal revenue.

Question

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm chooses a price that exceeds marginal revenue in order to maximize profits. This is because a monopolistically competitive firm faces a downward sloping demand curve, meaning that it has some market power to raise prices above marginal cost. However, it cannot charge a price that is significantly higher than its competitors, as consumers have other substitute products available.

In the Short Run, a Firm Operating in a Monopolistically