The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13 and MC = MR = $17.47. Which of the following is true?
A) Per-unit profit is $11.
B) Additional firms will be attracted into the industry.
C) The firm could raise price and increase profits.
D) The firm could lower price and increase profits.

Question

Quizplus · Accepted Answer

In the short-run equilibrium for a monopolistically competitive firm, if the price (P = $28.47) is above average total cost (ATC = $22.13), the firm is making a profit. This profit signals that the industry is attractive, leading to the entry of additional firms into the industry over time.

The Short-Run Equilibrium for a Monopolistically Competitive Firm Is at P