Question

How can a monopolistic competitor tell whether the price it is charging will cause the firm to earn profits or experience losses?

Short answer

The profit maximization takes place at the quantity where the marginal revenue is the same as marginal demand.

Step-by-step solution

Step 1.Average total cost(ATC).

Total cost divided by total amount produced yields the average total cost (ATC). It simply refers to the overall cost per unit, which includes all fixed and variable costs.

Step 2.

A monopolistically competitive firm will earn profits if their price is more than the average total cost and face losses if their price is less than the average total cost.