Under what circumstances will a profit-maximizing firm in a monopolistically competitive industry shutdown in the short run?
A) if accounting profits are negative
B) if there are no barriers to exit
C) if economic losses from production exceed total fixed costs
D) if economic profits are negative

Question

Quizplus · Accepted Answer

In the short run, a profit-maximizing firm in a monopolistically competitive industry will shutdown if the economic losses from production exceed total fixed costs. This is because the firm is unable to cover its fixed costs, and continuing production will only lead to further losses. Negative accounting profits or economic profits may not necessarily lead to shutdown if they are still enough to cover fixed costs and some return on investment. The presence of barriers to exit may also prevent a firm from shutting down even if it is making losses.

Under What Circumstances Will a Profit-Maximizing Firm in a Monopolistically