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Question
Macroeconomics
Posted 9 months ago
Which of these graphs correctly illustrates a monopolistic competition in long-run equilitbrium?
ount 1rram
(a)
(c)
(5)
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Answer from Sia
Posted 9 months ago
Solution
a
Identifying Long-Run Equilibrium in Monopolistic Competition: In the long run, a monopolistically competitive firm will produce at a point where the Marginal Cost (MC) curve intersects the Demand (D) curve at the point where the Average Total Cost (ATC) curve is tangent to the Demand (D) curve. This indicates that the firm is making zero economic profit
b
Graph Characteristics for Monopolistic Competition: The correct graph will show the firm's Demand (D) curve as downward sloping and more elastic than that of a monopoly. The Marginal Revenue (MR) curve will also be downward sloping and lie below the Demand (D) curve. The point where MR intersects MC is where the firm will determine its quantity of output. The ATC curve should be tangent to the Demand (D) curve at this quantity, indicating that the firm is breaking even
Answer
The graph that correctly illustrates a monopolistic competition in long-run equilibrium is the one where the ATC curve is tangent to the Demand (D) curve at the point where the MC curve intersects the MR curve.
Key Concept
Long-Run Equilibrium in Monopolistic Competition
Explanation
In the long run, monopolistically competitive firms produce where MC equals MR and ATC is tangent to the Demand curve, indicating zero economic profit.
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