A local café operates in a monopolistically competitive market. After analyzing its costs and pricing strategy, the owner finds that the price of their signature coffee is $3.50, while the average total cost per cup is $4.00. What does this indicate about the café's economic profit, and what implications might it have for their long-term strategy?

When the café sells its signature coffee for $3. 50 but incurs an average total cost of $4. 00 per cup, it is losing money on each cup sold. This situation indicates that the café's economic profit is negative, meaning they are not covering their costs. In the long term, if this continues, the café may need to reconsider its pricing strategy or find ways to reduce costs in order to become profitable.