Question

In the long run, a profit maximizing monopolistically competitive firm sets its price ________.

1) based on the demand curve
2) based on the average cost curve
3) based on the marginal cost curve
4) based on the supply curve

Answer 1

A profit-maximizing monopolistically competitive firm sets its price based on the demand curve.

Step-by-step explanation:

A profit-maximizing monopolistically competitive firm sets its price based on the demand curve. In step 2 of the process, the firm decides what price to charge by drawing a line straight up from the profit-maximizing quantity to the demand curve, which shows the price at which the firm can maximize its profits. This price is determined by the market and what customers are willing to pay for the product or service.