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Figure: Profit Maximization for a Firm in Monopolistic Competition
-(Figure: Profit Maximization for a Firm in Monopolistic Competition)Use Figure: Profit Maximization for a Firm in Monopolistic Competition.Suppose that an innovation reduces a firm's costs from ATC to ATC'.Before the innovation reduced the cost,the firm's economic profit at the profit-maximizing quantity was:
A)$0.
B)$30.
C)$750.
D)$4,500.

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Use the following to answer question:
Figure: Profit Maximization for a Firm in Monopolistic Competition 
-(Figure: Profit Maximization for a Firm in Monopolistic Competition)Use Figure: Profit Maximization for a Firm in Monopolistic Competition.Suppose that an innovation reduces a firm's costs from ATC to ATC'.Before the innovation reduced the cost,the firm's economic profit at the profit-maximizing quantity was:
A)$0. 
B)$30. 
C)$750. 
D)$4,500.

Quizplus · Accepted Answer

In monopolistic competition, firms typically earn zero economic profit in the long run due to free entry and exit in the market. Before the innovation, the firm was likely at a point where its price equaled its average total cost (ATC), resulting in zero economic profit.

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