Which of the following is true regarding the production and pricing decisions of monopolistically competitive firms? Monopolistically competitive firms choose the quantity at which marginal cost equals ?
Correct answer: A. marginal revenue and then use the demand curve to determine the price consistent with this quantity
- A. marginal revenue and then use the demand curve to determine the price consistent with this quantity
- B. average total cost and then use the supply curve to determine the price consistent with this quantity
- C. marginal revenue and then use the supply curve to determine the price consistent with this quantity
- D. average total cost and then use the demand curve to determine the price consistent with this quantity
Explanation
The firm first chooses output where marginal revenue equals marginal cost, which maximizes profit. It then goes to the demand curve, rather than a supply curve, to find the price consumers will pay for that output.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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