Figure 13-14

Figure 13-14 illustrates a monopolistically competitive firm.
-Refer to Figure 13-14.Which of the following statements describes the firm depicted in the diagram?
A)The firm is making no economic profit and will exit the industry.
B)The firm is suffering an economic loss by producing at Q₀ but will break even if it increases its output to Q₁.
C)The firm achieves productive efficiency by producing at Q₀.
D)The firm is in long-run equilibrium and is breaking even.

Question

Figure 13-14
  
Figure 13-14 illustrates a monopolistically competitive firm.
-Refer to Figure 13-14.Which of the following statements describes the firm depicted in the diagram?
A)The firm is making no economic profit and will exit the industry. 
B)The firm is suffering an economic loss by producing at Q₀ but will break even if it increases its output to Q₁. 
C)The firm achieves productive efficiency by producing at Q₀. 
D)The firm is in long-run equilibrium and is breaking even.

Quizplus · Accepted Answer

The firm is producing at a quantity where marginal revenue equals marginal cost (Q₀). At this point, the firm is making zero economic profit but is covering all its costs. In the long run, if the firm was making a loss, firms would exit the industry and decrease supply, leading to an increase in price and eventually restoring equilibrium where the firms break even. Therefore, the firm is in long-run equilibrium and is breaking even.

Figure 13-14 Figure 13-14 Illustrates a Monopolistically Competitive Firm