Asked by David Frigoletto on May 09, 2024
Verified
In the short run,a profit-maximizing monopolistically competitive firm sets it price:
A) equal to marginal revenue.
B) equal to marginal cost.
C) above marginal cost.
D) below marginal cost.
Marginal Revenue
The increase in revenue resulting from the sale of one additional unit of output.
Profit-Maximizing
The process or strategy of adjusting production and pricing to achieve the highest possible profit within a market.
- Critique the profit-enhancement strategies adopted by firms in a monopolistically competitive market.
Verified Answer
MA
Muneeb AbbasMay 10, 2024
Final Answer :
C
Explanation :
In the short run, a monopolistically competitive firm maximizes its profits by producing an output level where marginal revenue (MR) equals marginal cost (MC). However, due to the presence of differentiation of its product, the firm faces a downward-sloping demand curve. As a result, the firm can charge a higher price than its marginal cost and earn positive economic profits. Therefore, in the short run, a profit-maximizing monopolistically competitive firm sets its price above marginal cost.
Learning Objectives
- Critique the profit-enhancement strategies adopted by firms in a monopolistically competitive market.
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