Figure: Firms in Monopolistic Competition (Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition.There will be a negative economic profit (or an economic loss) earned at the profit-maximizing price ________ in panel _.

Question

Figure: Firms in Monopolistic Competition  (Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition.There will be a negative economic profit (or an economic loss) earned at the profit-maximizing price ________ in panel _.

Quizplus · Accepted Answer

In monopolistic competition, firms earn zero economic profit in the long run due to the presence of relatively easy entry and exit. Therefore, at the profit-maximizing price in panel J, where the marginal cost curve intersects the marginal revenue curve, the firm will earn negative economic profit (or an economic loss) if the price is below the average total cost curve. This is because the firm is producing at a level where the cost of producing an additional unit of output exceeds the revenue earned from selling that unit, resulting in a net loss. Therefore, panel C shows the area where the firm is earning negative economic profit (or an economic loss) at the profit-maximizing price.