Which type of profit-maximizing firm will choose to produce where price equals marginal cost?

(a) monopolistic competition

(b) perfect competition

(c) perfect competition and monopolistic competition

(c) Perfect competition and Monopolistic Competition

Reason: The firms in both perfect competition and monopolistic competition seek to maximise their level of profits by producing at the level where the marginal revenue (MR) equals the marginal cost (MC). Even though firms in perfect competition are price takers, they still have control of the output decision. They would obtain maximum profit when the MC becomes equal to MR. Similarly, in the case of monopolistic competition, the firms have some degree of price and output control, because each firm produces a heterogeneous product. But here, each firm in the monopolistic competition will tend to maximise its level of profit at a point where the MC = MR.