Toby operates a small deli in a monopolistically competitive restaurant industry.In long-run equilibrium,the profit-maximizing price of the three-meat sandwich is $3.Price also equals his average total cost.Toby's minimum average total cost is less than $3.

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In a monopolistically competitive market, firms can earn profits in the short run but in the long run, due to easy entry and exit, economic profits are driven to zero. In the long run equilibrium, the price will equal the average total cost, and in this case, that is $3. Since Toby's minimum average total cost is less than $3, he is earning a profit in the long run.

Toby Operates a Small Deli in a Monopolistically Competitive Restaurant