Question

26. 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.

Answer 1

Answer: Option (b) is correct.

Step-by-step explanation:

In a monopolistic competitive market condition, there are many firms who are selling the product which are similar in nature but products are not perfect substitute. So, these firms are producing differentiated products.

The Profit-maximizing level of output for monopolistic firm is at a point where marginal revenue is equal to marginal cost and the corresponding point on the demand represents the profit maximizing price.