In a monopolistically competitive market, firms maximize profits by producing at the output level where marginal cost equals _______.

In a monopolistically competitive market, firms maximize their profits by producing at the output level where marginal cost equals marginal revenue. Marginal cost is the cost of producing one more unit of a good, while marginal revenue is the additional income generated from selling that extra unit. When a firm produces at this point, it ensures that the cost of making one more product is exactly balanced by the money it earns from selling it, meaning it is not losing money on that unit. For example, if a coffee shop finds that making one more cup of coffee costs $2 and selling it brings in $3, it will continue to produce until the costs and revenues are equal. This balance helps the firm maximize its profits in a competitive market where many firms offer similar products.