-The above figure shows the demand and cost curves for a firm in monopolistic competition. In the figure, the firm makes an economic profit of

Question

Quizplus · Accepted Answer

In monopolistic competition, a firm's economic profit is determined by the difference between its total revenue and total costs. The area representing economic profit is the rectangle formed by the price level (P), the average cost (AC) at the quantity produced (Q), the quantity axis, and the vertical line drawn at the quantity produced. Without the specific figure, the correct answer typically involves understanding that economic profit is not zero (which would be the case in perfect competition in the long run), and it's not necessarily the highest possible profit because of the firm's inability to perfectly price discriminate or produce at the minimum of the average cost curve. Given the options and assuming the question implies that there is indeed a profit being made, $40 is a plausible amount for an economic profit in such a market structure, reflecting that the firm is covering all its costs and still retaining some surplus.

-The Above Figure Shows the Demand and Cost Curves for a Firm