Question

Both monopolistically competitive firms and perfectly competitive firms maximize profits A. by producing where marginal revenue equals average revenue. B. by producing where price equals average variable cost. C. by producing where price equals average total cost. D. by producing where marginal revenue equals marginal cos

Answer 1

Answer:

The correct answer is option D.

Explanation:

A monopoly or monopolistic firm faces a downward-sloping demand curve. The firm is a price maker. A monopolistic firm is at equilibrium or maximizes profit at the point where marginal revenue equals marginal cost.  

A perfectly competitive firm is a price taker and the price is determined by market forces. It faces a horizontal demand curve. This horizontal line shows average revenue, marginal revenue, and price of the product. The equilibrium is achieved when all these are equal to marginal cost.