A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to \( \$ 20 \), has marginal revenue equal to \( \$ 12 \), has marginal cost equal to \( \$ 12 \), and has average total cost equal to \( \$ 18 \). From this information we can infer that a. the firm is currently maximizing its profit. b. the profits of the firm are negative. c. firms are likely to leave this market in the long run. d. All of the above are correct.

Since the firm is charging a price of $20 but has an average total cost (ATC) of $18, it is indeed making a profit of $2 per unit (20 - 18 = 2) despite the marginal revenue (MR) and marginal cost (MC) being equal at $12. This means that the firm is not maximizing its profit at the current output of 20 units because MR should equal MC for profit maximization. Therefore, while there are profits, they aren’t being maximized and it suggests that the firm may need to adjust output levels. In the long run, if firms in this market continue to earn profits, new entrants might be attracted to this market, which could lead to increased competition. This could drive the price down until firms are only breaking even. If this adjustment happens and profits disappear, it might lead some current firms to exit. Thus, option d hints that all scenarios can be possible based on the given conditions.