If a monopolistically competitive firm is producing 800 cat condos at a price of $90 and an average total cost of $75, which statement is TRUE?
A) This firm is operating in the long run and earning an economic profit.
B) This firm is operating in the long run and incurring an economic loss.
C) This firm is operating in the short run and earning an economic profit.
D) This firm is operating in the short run and incurring an economic loss.

Question

Quizplus · Accepted Answer

Since the price ($90) is greater than the average total cost ($75), the firm is earning an economic profit. The distinction between short run and long run isn't directly provided, but firms in monopolistic competition can earn profits in the short run; in the long run, new firms enter, driving profits to zero.

If a Monopolistically Competitive Firm Is Producing 800 Cat Condos