closely how a monopoly makes these decisions process. First, the firm selects the profit-maximizing quantity to

produce. Then the firm decides what price to charge for that quantity.

Step 1. The monopolistic competitor determines its profit-maximizing level of output. In this case, the Authentic

Chinese Pizza company will determine the profit-maximizing quantity to produce by considering its marginal

revenues and marginal costs. Two scenarios are possible:

•

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then the firm

should keep expanding production, because each marginal unit is adding to profit by bringing in more

revenue than its cost. In this way, the firm will produce up to the quantity where MR = MC.

•

If the firm is producing at a quantity where marginal costs exceed marginal revenue, then each marginal unit
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