Question

A monopolistically competitive fim doesn't produce where P = MC like a perfectly competitive firm because:

A. the approach to profit maximization used by monopolistically competitive firms is fundamentally different from the approach used by firms in other markets
B. perfectly competitive firms face downskoping demand curves and monopolistically competitive firms do not.
C. P exceeds MR for a monopolistically competitive firm, and i's MR that must equal MC for profift maximization
D. perfectly competitive firms know the price with certainty while monopollstically competitive firms do not

Answer 1

C) P exceeds MR for a monopolistically competitive firm, and i's MR that must equal MC for profift maximization

Step-by-step explanation:

Monopolistically competitive firm sell differentiated products and face a downward-sloping demand curve. That is why the price of their product exceeds their marginal costs. If the price was lowered, the firm would get less revenue for previous units as well. Monopolistically competitive firms and their customers are not price takers, therefore if the firm increases their prices too much, then the quantity demanded will fall.

So a monopolistically competitive firm will maximize their profit when marginal revenue = marginal cost, as long as price exceeds marginal revenue.