# If all firms in an economy are in monopolistic competition with constant elasticity of substitution, can they profit-maximize at $MC=MR=AC$?

Suppose all firms are monopolistically competitive with constant elasticity of substitution. Can they profit maximize at the quantity point $MC=AC$ (So $P \neq MC$ but $Q$ is set at where $MC=MR=AC$ is established)?

By constant elasticity of substitution, I mean that $\epsilon = -(\partial Q_j/\partial P_i)/(Q_j/P_i)$ is constant for $\forall i \neq j$ where $i,j$ refers to firms, $Q$ refers to quantity, and $P$ refers to price.

• What here has the "constant elasticity of substitution" property? Production? Demand? Supply? Revenues? Costs? Please clarify. Dec 24, 2014 at 19:57
• Sorry for my omission. Now I clarified. Dec 24, 2014 at 20:01
• Your title had a condition on MR, but the question does not. Can you clarify? Dec 25, 2014 at 4:12
• Clarified. It's just ordinary profit-maximization stuff - in almost all economic structure, firms set their quantity at $MC=MR$ point (it's just first-order condition) - though if firms are not perfect competition type, then $P \neq MC$ - I omitted in the main text because it was so obvious anyway. Dec 25, 2014 at 4:21