Question

In which market structure does a firm operating in a monopolistically competitive market maximize profits when MR=MC?

1) Perfect competition
2) Monopoly
3) Oligopoly
4) Monopolistic competition

Answer 1

A firm operating in a monopolistically competitive market maximizes profits when MR = MC.

Step-by-step explanation:

In a monopolistically competitive market, a firm maximizes profits when marginal revenue (MR) equals marginal cost (MC). Therefore, the correct answer is 4) Monopolistic competition.

Unlike perfect competition, monopolistic competition allows firms to differentiate their products through branding, advertising, or other means. This leads to a downward-sloping demand curve, with each firm having some degree of market power. As a result, the firm's profit-maximizing quantity and price will be determined where MR equals MC.