Final answer:
True, monopolies do produce where marginal revenue equals marginal cost to maximize profits. Over the long run, increased competition will lower a monopolistic competitor's profit-maximizing price and output levels.
Step-by-step explanation:
Like competitive firms, monopolies choose to produce a quantity in which marginal revenue equals marginal cost. This statement is considered true when it comes to finding the profit-maximizing level of output. Both, competitive firms and monopolies will produce additional units as long as the revenue gained from selling one more unit (marginal revenue) is higher than the cost incurred for producing that additional unit (marginal cost). This production continues until marginal revenue equals marginal cost, at which point producing more would no longer increase profits. However, the process differs after this point as a monopoly can set its own prices due to the lack of competition, while competitive firms are price takers and must accept the market price.
In the long run, if a monopolistic competitor earns positive economic profits, this could attract new entrants into the market, assuming there are no high barriers to entry. As competition increases, the monopolistic competitor's demand curve becomes more elastic, and they will likely have to lower their profit-maximizing price and output levels to remain competitive. This scenario often leads to an eventual decrease in economic profits towards a normal profit level.