Monopolistically competitive model

Reference no: EM1369957

Given a situation (discussed in class today) in a monopolistically competitive market (NOT a monopoly), if my price is $10 for an item and at my present rate of output, my marginal cost is $8 per unit (and rising)... Do I need to change my price to maximize my profits? With a rising marginal cost, I don't think my profits are maximized, but I'm not sure how to tell for sure, and I'm trying to figure out in a monopolistically competitive model whether I should drop the price to lure more customers (to increase profits), raise the price to get more revenue per sale (but make fewer sales), or leave it alone. With rising marginal costs, it makes sense (in my mind) that I'm not currently maximizing. We talked about it today in class, but I didn't get the full concept... and the test is tomorrow morning. PLEASE HELP!!!

I suppose the actual scenario that I need to understand is this: Given a price and marginal cost (for example the $10 and $8 respectively above), am I maximizing profits already, or do I need to change my price... and why?

Reference no: EM1369957

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