For a profit-maximizing monopolistically competitive firm, marginal revenue equals marginal cost in
A)the short run but not in the long run.
B)the long run but not in the short run.
C)both the short run and the long run.
D)neither the short run nor the long run.

Question

Quizplus · Accepted Answer

In monopolistic competition, the firm faces a downward sloping demand curve, which means that marginal revenue is less than the price. Therefore, in order to maximize profits, the firm produces up to the point where marginal revenue equals marginal cost in both the short run and the long run. This is because in the long run, monopolistically competitive firms can enter or exit the market, causing the demand curve to shift and the price to change. However, in the short run, the firm is unable to adjust its output level to fit the new demand curve, which means that it still produces up to the point where MR=MC in order to maximize profit.

For a Profit-Maximizing Monopolistically Competitive Firm, Marginal Revenue Equals Marginal