Asked by Carla Reyes on May 28, 2024
Verified
A firm in monopolistic competition maximizes its profit by producing at a quantity where:
A) MC = ATC.
B) MC = AR.
C) MC = MR.
D) MC = P.
Monopolistic Competition
An industry setup where numerous companies offer products that are alike but not exactly the same, providing a certain level of influence over the market.
Profit Maximizes
The process or strategy of adjusting the production output and pricing to achieve the highest possible profit.
- Interpret the contribution of marginal revenue (MR) and marginal cost (MC) towards the maximization of profits in monopolistically competitive contexts.
Verified Answer
RC
Ricker CarterMay 28, 2024
Final Answer :
C
Explanation :
In monopolistic competition, the firm faces a downward-sloping demand curve, meaning that in order to sell one more unit of output, the firm must lower the price of all units sold. Therefore, the marginal revenue earned by the firm is less than the price of the good, and the firm will choose to produce where MC=MR in order to maximize profit.
Learning Objectives
- Interpret the contribution of marginal revenue (MR) and marginal cost (MC) towards the maximization of profits in monopolistically competitive contexts.