Given the information in the table below and assuming monopolistic competition, answer the following questions. (a.) What is this firm's optimal level of output? (b.) Is this firm in equilibrium? Please explain.

QPrice ($)MR ($)MC ($)ATC ($)0200219419410028241881821202016182170144182817615817217910170146207185

(a.) The last three columns of the following table calculate, respectively, total revenue (TR), total cost (TC) and profit for the firm at different levels of production. The firm is in a loss position for all levels of output except 6 units, where it is at a break-even point. Therefore, in the short-run, the firm should produce at that level. It is notable that at 6 units of output, product price, which is another word for average revenue, is equal to average cost (AC). This accounts for the zero profits and is one of the long-run equilibrium conditions for a firm that is a monopolistic competitor.

(b.) This monopolistically competitive firm is not in long-run equilibrium. At 6 units of output, it is in a zero-loss position with P equal to AC, which is consistent with the long-run expected position of a monopolistically competitive firm. However, at that level of output, marginal revenue (MR) is greater than marginal cost (MC), which indicates that further adjustment is necessary. Two things are likely to occur in completing the gravitation to long-run equilibrium. First, for firms remaining in the industry, production is likely to be increased because MR is greater than MC. Simultaneously, however, since this results in a loss, with AR less than AC, some firms are likely to leave the industry. In the final equilibrium, after everything adjusts, AC will equal AR, MR will equal MC and no pure economic profits will be made.

QPrice ($)MR ($)MC ($)ATC ($)TR ($)TC ($)Profit ($)02002194194100282388564−1764188182120201752804−5261821701441821,0921,092081761581721791,4081,432−24101701462071851,7001,850−150