A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning negative economic profits.Which of the following must be true?
A)ATC P MR = MC.
B)ATC = P MR = MC.
C)ATC P = MR = MC.
D)ATC P MR MC.

Question

A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning negative economic profits.Which of the following must be true?
A)ATC > P > MR = MC.
B)ATC = P > MR = MC.
C)ATC > P = MR = MC.
D)ATC > P > MR > MC.

Quizplus · Accepted Answer

ATC > P > MR = MC.In the short run, a monopolistically competitive firm may earn negative economic profits if the price is below the average total cost. At the optimal level of output, marginal revenue equals marginal cost, but price is still below average total cost.

A Monopolistically Competitive Firm Is Operating in the Short Run