In monopolistic competition, how do firms decide on the output level and corresponding price?

Show Answers

They produce where marginal cost equals marginal revenue and then set the price based on the demand curve at that quantity.They produce where average total cost equals marginal cost and determine the price using the supply curve for that output.They produce where marginal cost equals marginal revenue and then find the price using the supply curve at that quantity.They produce where average total cost equals marginal revenue and set the price according to the demand curve for that quantity.They produce at the output where marginal revenue equals average revenue and price is set by the supply curve.

Explanation

Monopolistically competitive firms select the output level where marginal cost equals marginal revenue. After determining this quantity, they use the demand curve to establish the price consumers are willing to pay for that amount.