Question

Both competitive and monopolistically competitive firms: can maximize profit by raising price. cannot control or set their own price. can maximize profit by producing to the point where marginal cost = marginal revenue. can enforce price arrangements vigorously in court. sell products that are identical.

Answer 1

Option (C) is correct.

Step-by-step explanation:

Both perfectly competitive firms and monopolistically competitive firms producing at a point where their marginal cost is equal to the their marginal revenue. It is also a profit maximizing condition for these firms.

Perfectly competitive firms won't be able to increase their product price because of the other firms who are selling identical products. So, if any increase their price then their sales either become zero or falls drastically.

But in case of monopolistic competitive market conditions, firms are selling similar products but these products are not perfect substitute. So, firms in this market can set their prices.

Hence, the profit maximizing condition for both the firms is at MR = MC.