Question

A monopolistically competitive firm maximizes profit where

Answer 1

A monopolistically competitive firm maximizes profit where its

Marginal revenue = Marginal cost or MR = MC

It is a major characteristic of a a monopolistically competitive firm that they tend to produce a lower quantity at a much higher cost and to charge a higher price for the commodity.

The demand curve for monopolistically competitive firm is inelastic, which indicates that the monopolistic competitor can raise its prices without losing all of its customers or lower the price and gain more customers. However there are substitutes in the market so the demand curve is not entirely inelastic but a bit on the flat side.