Suppose that in the short run, a monopolistically competitive firm sells its product for $40 per unit. Its average total cost at the optimal level of output is $30. This means that:

Question

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In the short run, the firm makes a profit since the price ($40) is greater than the average total cost ($30). In the long run, new firms will enter the market due to these profits, causing the firm's demand curve to shift to the left.

Suppose That in the Short Run, a Monopolistically Competitive Firm