-Fresh Taste, Inc. produces organic breakfast cereals. The market for breakfast cereals is monopolistically competitive. The figure above shows the demand curve that Fresh Taste faces (D) , the company's marginal revenue curve (MR) , its marginal cost curve (MC) , and its average total cost curve (ATC) . If Fresh Taste and other firms in the market are currently producing their profit maximizing quantities of cereals, then the market is

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Quizplus · Accepted Answer

In monopolistic competition, firms are in long-run equilibrium when they are producing at the point where MR = MC and P = ATC. In the short run, firms may be making a profit or loss, but in the long run, firms will only stay in the market if they are making a normal profit. In this case, Fresh Taste is producing at the point where MR = MC and P = ATC, so the market is in both short-run equilibrium and long-run equilibrium.