In the short-run, a monopolistically competitive firm:
|will produce at the point at which price equals minimum ATC, to maximize profits.|
|will produce at the point where marginal revenue is greater than marginal cost, in order to maximize profits.|
|will charge a price equal to its marginal revenue.|
|can earn only a normal profit.|
|will shut down temporarily if price is less than AVC.|
In the short-run, a monopolistically competitive firm will shut down temporarily if the price is less than AVC.
This is because price being equal to the minimum point of the average total cost (ATC) is equilibrium condition for the monopolistically competitive firm in the long-run.
In addition to this, a monopolistically competitive firm produces at the point where the marginal cost (MC) is equal to the marginal revenue (MR). If MR is greater than MC, then the firm is not in equilibrium and will continue to produce more.
Price equal to the MR happens in the case of a perfectly competitive firm.
In the short run, a monopolistically competitive firm earns super-normal profit.
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