Multiple Choice
The firm's profit-maximizing output in monopolistic competition is:
13. Monopolistic Competition
Monopolistic Competition Profit on the Graph
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In the short run, a monopolistically competitive firm chooses
A
Its quantity but not its price
B
Its price but not its quantity
C
Neither its price nor its quantity
D
Both its price and its quantity
Verified step by step guidance1
Understand the characteristics of a monopolistically competitive market: Many firms, differentiated products, and some control over price.
Recognize that in the short run, firms in monopolistic competition face a downward-sloping demand curve, allowing them to set prices above marginal cost.
Identify that the firm maximizes profit by choosing a quantity where marginal cost (MC) equals marginal revenue (MR).
Determine the price by finding the point on the demand curve that corresponds to the profit-maximizing quantity.
Conclude that the firm has the ability to choose both its price and quantity in the short run, as it can set the price based on the demand curve after determining the optimal quantity.
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