Figure15-1The Monopolistically Competitive Firm in the Short Run The firm in panel (a) can be profitable for some output quantities: the quantities for which its average total cost curve, ATC, lies below its demand curve, D_P. The profit- maximizing output quantity is q_P, the output at which marginal revenue, MR_P, is equal to marginal cost, MC. The firm charges price P_P and earns a profit, represented by the area of the green-shaded rectangle. The firm in panel (b), however, can never be profitable because its average total cost curve lies above its demand curve, D_U, for every output quantity. The best that it can do if it produces at all is to produce quantity q_U and charge price P_U. This generates a loss, indicated by the area of the yellow-shaded rectangle. Any other output quantity results in a greater loss.