In the short run, a firm operating in a monopolistically competitive market
A)produces an output level where marginal revenue equals average total cost.
B)sets price equal to demand where marginal revenue equals marginal cost.
C)must earn zero economic profits.
D)maximizes revenues as well as profits.

Question

Quizplus · Accepted Answer

In the short run, a firm operating in a monopolistically competitive market sets price equal to demand where marginal revenue equals marginal cost in order to maximize profits. Producing an output level where marginal revenue equals average total cost or earning zero economic profits may not necessarily be the profit-maximizing strategy for the firm. Maximizing revenues does not guarantee maximizing profits, as it depends on the costs associated with production.

In the Short Run, a Firm Operating in a Monopolistically