Explain price and output determined under monopolistic competition with help of diagram.
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In the diagram output is shown on OX-axis, price, costs and revenue are shown on OY-axis. The point of equilibrium is E where firm's marginal cost is equal to its marginal revenue (MC=MR). Price is PQ and output is OQ. At P the average revenue is equal to average cost hence the firm is earning normal profit only.
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