Question

Under monopolistic competition, a firm earns super‑normal profits in the short run when ______.

Options

• MR < MC and AR = AC

• MR = MC and AR = MC

• MR = MC and AR > AC

• MR > MC and AR < AC

Answer 1

Under monopolistic competition, a firm earns super‑normal profits in the short run when MR = MC and AR > AC.

Explanation:

Super‑normal profit occurs at the output where MR = MC but the average revenue (AR) is higher than average cost (AC), so the firm’s price covers more than its per‑unit cost.