If a monopolistically competitive firm is producing 50,000 units of output and at this output level, the price is $200 and the average total cost is $198, the firm profit/loss is equal to ______and it______ possible for the firm to be in long- run equilibrium.

Question

Quizplus · Accepted Answer

To calculate the profit/loss, we need to use the formula:

Profit = (Price - Average Total Cost) x Quantity

Substituting the given values, we get:

Profit = ($200 - $198) x 50,000 
Profit = $2 x 50,000 
Profit = $100,000

So the firm is making a profit of $100,000.

However, it is not possible for the firm to be in long-run equilibrium. In a monopolistically competitive market, firms have some control over the price they charge, due to product differentiation. This means that other firms can enter the market and offer a similar product, reducing the demand and price for the original firm. In the long run, profits will attract new firms to enter the market, causing the demand and price for the original firm to decrease. As the price falls, the firm's profit will decrease, and it may even start to make losses.

Therefore, the firm in the question may be making a profit in the short run, but it is not possible for it to be in long-run equilibrium.

If a Monopolistically Competitive Firm Is Producing 50,000 Units of Output