Question

The profit-maximizing rule MC = MR is followed by firms under:

• A. monopolistic competition, but not perfect competition.

• B. perfect competition, but not monopolistic competition.

• C. either monopolistic competition or perfect competition, depending on the costs of production.

• D. both monopolistic competition and perfect competition.

Answer 1

Question 1

A monopolistically competitive firm maximizes profit when it produce that level of output corresponding to which marginal cost equals the marginal revenue.

So, monopolistic competition follows profit-maximizing rule of MC = MR.

A perfectly competitive firm maximizes profit when it produce that level of output corresponding to which marginal cost equals price.

Since, price is given in case of perfectly competitive firm, price equals MR.

So,

MR=MC or price = MC, both can be used as profit-maximizing condition in case of perfect competition.

Hence, the correct answer is the option (D).