For which of the following market structures will the firm's demand curve be tangent to the ATC curve in the long run?
A)Duopoly.
B)Monopolistic competition.
C)Oligopoly.

Question

Quizplus · Accepted Answer

In monopolistic competition, there are many firms in the market producing differentiated products. Therefore, each firm has a downward sloping demand curve because customers are willing to pay a higher price for the differentiated product. However, in the long run, due to low barriers to entry, new firms can enter the market, increasing competition and reducing demand for each firm's product. As a result, in the long run, each firm's demand curve becomes more elastic, and will eventually be tangent to the firm's ATC curve at the profit maximizing output level. This occurs at the point where the firm earns zero economic profit.

For Which of the Following Market Structures Will the Firm's