Short-Run Equilibrium in Monopolistic Competition

In the short run, the profit-maximizing choice is the level of output where MR = MC. Because the product is somewhat different from that of the competitors, the firm can charge the price determined by the demand curve.

Total revenue is the area of the rectangle P₁× Q₁.

The average cost of producing Q₁ units of the product is C₁, and the total cost is the area of the rectangle C₁ × Q₁. The difference between TR and TC is economic profit. The profit relationship is described as

π = TR – TC