Figure 16-5
-Refer to Figure 16-5. Panel a shows a profit-maximizing monopolistically competitive firm that is

Question

Figure 16-5 
-Refer to Figure 16-5. Panel a shows a profit-maximizing monopolistically competitive firm that is

Quizplus · Accepted Answer

The firm is producing where marginal revenue (MR) equals marginal cost (MC), which is the profit-maximizing level of output. However, at this level of output, the firm is not earning any economic profit (represented by the gap between ATC and price). In the long run, firms in monopolistically competitive markets will only earn zero economic profit, so the fact that this firm is earning zero economic profit suggests that it is likely to survive in the long run. Choosing B or C would be incorrect, as the firm is not producing its efficient scale of output (which would occur where ATC is at its minimum) and there is no evidence to suggest that the firm is likely to exit the market. Choosing D would also be incorrect, as the firm is producing at the profit-maximizing level of output.

Figure 16-5 -Refer to Figure 16-5. Panel a Shows a Profit-Maximizing Monopolistically