A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating

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The firm is producing at a level where price is lower than average total cost ($4.00 vs $4.50), indicating that the firm is making a loss. The fact that marginal revenue is equal to marginal cost ($2.50) suggests that the firm is producing at an optimal level given its current cost structure, but this output level is not high enough to cover its fixed costs and earn a profit.

A Monopolistically Competitive Firm Is Producing at an Output Level