A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning negative economic profits. Which expression must be TRUE for this firm?

Question

Jamir Bradshaw

Business

8 December, 22:03

A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning negative economic profits. Which expression must be TRUE for this firm?

+3

Answers (1)

Know the Answer?

Lydia Mathews · Answer 1

ATC > P = MR = MC

Explanation:

A monopolistic firm is a price taker, it faces a downward-sloping demand curve.

If a monopolistic competitive firm is operating in the short run at an optimal level and earning negative economic profits, it means that the price is not able to cover the average total costs.

If the firm is at the optimal level, the price must be equal to marginal revenue and marginal cost. But the price is not covering costs, so the firm is incurring losses.