Q347
In short run, a firm in monopolistic competition
A.
Always earns profits
B.
Incurs losses
C.
Earns normal profit only
D.
May earn normal profit, super normal profit or incur losses
AnswerAnswer: Option D
Solution
Answer: Option D
Solution:
In short run, a firm in monopolistic competition may earn normal profit, super normal profit or incur losses. In the short run, a monopolistically competitive firm maximizes profit or minimizes losses by producing that quantity that corresponds to when marginal revenue = marginal cost. If average total cost is below the market price, then the firm will earn an economic profit.