In the short run,a profit-maximizing monopolistically competitive firm sets it price:

A) equal to marginal revenue.
B) equal to marginal cost.
C) above marginal cost.
D) below marginal cost.

In the short run, a monopolistically competitive firm maximizes its profits by producing an output level where marginal revenue (MR) equals marginal cost (MC). However, due to the presence of differentiation of its product, the firm faces a downward-sloping demand curve. As a result, the firm can charge a higher price than its marginal cost and earn positive economic profits. Therefore, in the short run, a profit-maximizing monopolistically competitive firm sets its price above marginal cost.