In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which of the following must be TRUE for this firm?
A) MR = MC and P = ATC.
B) MR = MC and P ATC.
C) MR MC and P = ATC.
D) P = MR = MC ATC.

Question

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which of the following must be TRUE for this firm?
A) MR = MC and P = ATC.
B) MR = MC and P > ATC.
C) MR > MC and P = ATC.
D) P = MR = MC > ATC.

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm maximizes profit by producing where marginal revenue (MR) equals marginal cost (MC). If the firm is earning positive economic profits, the price (P) must be greater than average total cost (ATC).

In the Short Run, a Monopolistically Competitive Firm Produces at the Optimal