A monopolistically competitive firm that is incurring a loss will ________ as long as its revenue covers variable costs.

Question

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm will continue to produce as long as it can cover its variable costs, even if it is incurring a loss. This is because, by covering variable costs, the firm can contribute to fixed costs and minimize losses. Shutting down would mean not covering any costs, leading to a higher loss equal to the fixed costs.

A Monopolistically Competitive Firm That Is Incurring a Loss Will