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:
A) with a profit in the short run.
B) with a loss in the short run.
C) at the break-even level of output in the short run.
D) at an efficient level of output in the short run.

Question

Quizplus · Accepted Answer

The firm is producing at a level where price ($4.00) is less than the average total cost ($4.50), indicating that it is operating at a loss in the short run. The fact that marginal revenue ($2.50) is equal to marginal cost ($2.50) tells us that the firm is not maximizing its profits, but producing where MR=MC is still preferable to shutting down.

A Monopolistically Competitive Firm Is Producing at an Output Level