Question

In the short run, a firm under monopolistic competition is in equilibrium when ______.

Options

• MR = MC and AR = AC

• MR = MC only

• MR = MC and AR ≥ AC or AR ≤ AC

• MR = AC and MC = AR

Answer 1

In the short run, a firm under monopolistic competition is in equilibrium when MR = MC and AR ≥ AC or AR ≤ AC.

Explanation: 

A monopolistically competitive firm maximises profit (or minimises loss) where MR = MC. In the short run, AR can be greater than, equal to, or less than AC, so the firm may have super‑normal profits, normal profits, or losses.