way as a monopolist. A monopolistic competitor, like a monopolist, faces a downward-sloping demand curve,

and so it will choose some combination of price and quantity along its perceived demand curve.

As an example of a profit-maximizing monopolistic competitor, consider the Authentic Chinese Pizza store,

which serves pizza with cheese, sweet and sour sauce, and your choice of vegetables and meats. Although

Authentic Chinese Pizza must compete against other pizza businesses and restaurants, it has a differentiated

product. The firm’s perceived demand curve is downward sloping, as Figure 10.3 shows and the first two

columns of Table 10.1.

FIGURE 10.3 How a Monopolistic Competitor Chooses its Profit Maximizing Output and Price To maximize profits,

the Authentic Chinese Pizza shop would choose a quantity where marginal revenue equals marginal cost, or Q where

MR = MC. Here it would choose a quantity of 40 and a price of $16.
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