Look in Preferences -> Behavior for the Preferred input order: ePub, MOBI, LIT, PRC, FB2, HTML, ODT, RTF, PDF.
If you have both MOBI and ePub native versions, I would try both. The ePub converted to MOBI can be better than the native MOBI in a significant percentage of cases.
There isn't a consistent difference between .mobi and .prc, but the latter sometimes refers to an older version of the MobiPocket format (so if you have both, choose the .mobi).
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