Figure 8.5
-Where the monopolistically competitive firm in Figure 8.5 produces it will

Question

Quizplus · Accepted Answer

The firm will produce at the quantity where marginal revenue (MR) equals marginal cost (MC). At this level of output, the firm will charge a price equal to the point on the demand curve that corresponds to that output level. Since this price will be greater than the firm's average total cost (ATC), the firm will make a positive economic profit in the short run. However, in the long run, new firms will enter the market, causing the demand curve facing the existing firms to shift leftward, reducing the price and profit margin for all firms. At the long-run equilibrium, the firm will make a zero economic profit, where its price will be equal to its ATC.

Figure 8.5 -Where the Monopolistically Competitive Firm in Figure 8.5 Produces It