If for a competitive firm that mc = avc at $12, mc = atc at $20, and mc = mr at $14. This firm will maximize its losses by producing in the short run. In the short run, a monopolistically competitive firm maximizes profits or minimizes losses by producing the quantity where marginal revenue = marginal cost.
If the average total cost is less than the market price, the firm will earn an economic profit. This is called short-term profit maximization.
Short-term profit maximization happens when a firm maximizes its profits by choosing to supply the level of output where its marginal revenue equals its marginal cost. When marginal revenue exceeds marginal cost, the firm can increase its output to earn more profit. When marginal revenue is below marginal cost, the firm loses money, and as a result, it must reduce its output. So profit is maximized when the firm chooses the level of output where its marginal revenue equals its marginal cost.
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