Consider the diagram nearby depicting the demand and cost conditions faced by a monopolistically competitive firm.

a. What are the total revenues, total costs, and economic profits experienced by this firm?

b. Is this firm more likely in short- or long-run equilibrium? Explain.

• Monopolistic competition depicts a market in which a large number of companies provide similar (but not ideal) replacements for their products or services.
• In a monopolistic competitive industry, entrance and exit barriers are minimal, and one firm's choices have little influence on its competitors.

The diagram below depicts the total output, revenue, and cost of a monopolistically competitive firm:

The $x$-axis in the diagram above represents quantity, and the $y$-axis represents cost. The marginal product curve is cut by the marginal cost curve from below. The average variable cost curve is shaped like a $U$.

The profit-maximizing output is determined when the marginal revenue equals the marginal cost. The demand curve indicates the output price.

There are two profit-maximizing outputs in the diagram. As a matter of fact, we will look into both possibilities.

If the quantity is $100$units per day. Therefore, the price is $\$28$.

Total revenue$=\$2,800$

localid="1652253673696" $(100\times 28=2,800).$

Total cost $=\$2,800$

$(100\times 28=2,800).$

Total revenue minus total costs equals economic profit.,

Hence, it is $\$0$.

$(2,800-2,800=0)$

In the shorter term, the firm makes a profit, but in the long run, the firm makes no economic profit. The firm earns no economic profit in the given situation. As a result, the firm is in long-run equilibrium.