In monopolistic competition,a firm's demand curve is tangent to the ATC curve in the long run because
A)Barriers to entry are high.
B)Entry eliminates economic profit,and exit eliminates losses.
C)Advertising is ineffective in differentiating the product.

Question

Quizplus · Accepted Answer

In the long run, firms in monopolistic competition will enter or exit the market until economic profit is zero. When economic profit is zero, the firm will be producing at the minimum point on its long-run average total cost (ATC) curve. At this point, the ATC curve is tangent to the demand curve, maximizing the firm's output while minimizing its average cost of production. Therefore, choice B is the best answer because it correctly explains why the demand curve is tangent to the ATC curve in the long run.

In Monopolistic Competition,a Firm's Demand Curve Is Tangent to the ATC