Economics Perfect Competition Questions Medium
The profit-maximizing output level for a monopolistically competitive firm is determined by the point where marginal revenue (MR) equals marginal cost (MC). In the short run, the firm will produce the quantity where MR = MC, and set the corresponding price based on the demand curve it faces. However, in the long run, due to the presence of entry and exit barriers, the firm will not be able to sustain supernormal profits. As a result, the profit-maximizing output level for a monopolistically competitive firm in the long run will be where average total cost (ATC) equals price (P), with normal profits being earned.