If a monopolistically competitive firm is producing an output level where its marginal cost is equal to its marginal revenue but it still earns a loss, then it should always shut down in the short run.

Question

Quizplus · Accepted Answer

A firm should only shut down in the short run if its total revenue is less than its variable costs, or equivalently, if the price is less than the average variable cost. Even if the firm is making a loss, as long as it covers its variable costs, it can contribute to fixed costs and potentially minimize losses.

If a Monopolistically Competitive Firm Is Producing an Output Level