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 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 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 the output level where marginal cost equals marginal revenue, indicating that it is maximizing its profits. However, the price it charges is above the minimum of average total cost, implying that the firm is not achieving allocative efficiency. In the long run, new firms may enter the market, increasing competition and putting downward pressure on prices. Thus, this firm is expected to break even in the long run. Therefore, the firm is in long-run equilibrium and is breaking even (option D).

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