Graph 17-2
-Refer to Graph 17-2.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is making economic profits?

Question

Graph 17-2 
-Refer to Graph 17-2.Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is making economic profits?

Quizplus · Accepted Answer

In panel c, the firm is producing at the profit-maximizing quantity, where MC=MR. This quantity is less than the quantity produced in the long-run equilibrium in a monopolistically competitive market. As a result, the firm is able to charge a price above its average total cost and earn economic profits in the short run. However, in the long run, other firms may enter the market and increase competition, driving down the firm's demand and decreasing profits.

Graph 17-2 -Refer to Graph 17-2.Which of the Graphs Shown Would Be