In the short run, a firm operating in a monopolistically competitive market can earn
A)positive economic profits.
B)economic losses.
C)zero economic profits.
D)All of the above are possible.

Question

Quizplus · Accepted Answer

Monopolistically competitive firms can earn positive economic profits, economic losses, or zero economic profits in the short run, depending on the specific conditions they face in the market. Positive economic profits are possible if the firm is able to differentiate its product sufficiently and charge a price that exceeds its average total cost. Economic losses can occur if the firm faces high fixed costs or intense competition that drives prices down below average total cost. Zero economic profits may occur if the firm is able to match its average total cost with its price, but there is no room for additional profit or loss. Therefore, all of the above options are possible for a monopolistically competitive firm in the short run.

In the Short Run, a Firm Operating in a Monopolistically