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 if 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 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 if 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 where MR=MC at Q0 and charging a price of P0. This indicates that the firm is earning only normal profit or breaking even in the long run. The firm is in long-run equilibrium, and there is no incentive for it to enter or exit the industry.

Figure 13-14 Illustrates a Monopolistically Competitive Firm