Comment on the following statement. "Monopolistically competitive firms will still produce in the short run even if the demand curve is below their average variable cost curve because the firms still maintain a degree of market power."
What will be an ideal response?
This statement is false. If the demand curve lies below the average variable cost curve then monopolistically competitive firms, like any other firms, will find it in their interest to shut down in the short run since this will minimize losses. Market power has no bearing on the decision to shut down or remain in production.
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