Multiple choice

The equilibrium in the short run for monopolistic competition is reached, where

  1. MC = MR

  2. MR > MC

  3. MR < MC

  4. MC = AC

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A Correct answer
Explanation

Like all profit-maximizing firms regardless of market structure, a monopolistically competitive firm produces where Marginal Revenue equals Marginal Cost (MR = MC). At this output level, the firm maximizes its profit or minimizes its loss. The other options (MR > MC would mean underproducing, MR < MC would mean overproducing) represent suboptimal decisions.

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