These are the cost and revenue curves associated with a firm. Assuming the firm in the graph shown is producing Q1 and charging P3,it is likely showing the cost and revenue curves of a monopolistically competitive firm that is:
A)making positive economic profits.
B)earning negative economic profits.
C)in long-run equilibrium.
D)All of these statements are true.

Question

These are the cost and revenue curves associated with a firm.  Assuming the firm in the graph shown is producing Q1 and charging P3,it is likely showing the cost and revenue curves of a monopolistically competitive firm that is:
A)making positive economic profits. 
B)earning negative economic profits. 
C)in long-run equilibrium. 
D)All of these statements are true.

Quizplus · Accepted Answer

At quantity Q1 and price P3, the firm is producing where the average revenue (AR) curve intersects with the marginal cost (MC) curve. This implies that the firm is not making any economic profit, but only covering its total costs. Therefore, the answer is B, indicating that the firm is earning negative economic profits. If the firm were earning positive economic profits, the price would be above the average total cost (ATC) curve, and if it were in long-run equilibrium, the price would be equal to the minimum point of the ATC curve in the long run.

These Are the Cost and Revenue Curves Associated with a Firm