If the short-run equilibrium position for a monopolistically competitive firm is P = $28.47, ATC = $22.13, and MC = MR = $17.47, which of the following statementsis true?
A) The firm's economic profit is $11.
B) Additional firms will be attracted into the industry.
C) The firm could raise price and increase profit.
D) The firm could lower price and increase profit.
E) The firm is producing on the upward-sloping segment of its ATC curve.

Question

Quizplus · Accepted Answer

Since the firm is making an economic profit (P > ATC), additional firms will be attracted into the industry. This is because economic profits signal to other firms that there are opportunities for profit in this industry, leading to entry until profits are driven down to normal levels.

If the Short-Run Equilibrium Position for a Monopolistically Competitive Firm