When a Monopolistically Competitive Firm Is Making Zero Economic Profits

question 2

Multiple Choice

When a monopolistically competitive firm is making zero economic profits, it is producing at the output level at which the average total cost curve is tangent to the demand curve faced by the firm.At this output:

• A)the firm is maximizing profits, and marginal cost must equal marginal revenue.
• B)the firm is not maximizing profits, and a slight increase or decrease in output will lead to positive profits.
• C)since economic profits are equal to zero, the condition that marginal revenue equals marginal cost is irrelevant and need not hold.
• D)the condition that marginal revenue equals marginal cost continues to be relevant, but the marginal revenue and marginal cost curves need not intersect directly below the point of tangency between the average total cost curve and the demand curve faced by the firm.

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