A monopolistically competitive firm faces the following demand curve for its product: The firm has total fixed costs of $120 and a constant marginal cost of $12 per unit. We can conclude that

Question

A monopolistically competitive firm faces the following demand curve for its product:  The firm has total fixed costs of $120 and a constant marginal cost of $12 per unit. We can conclude that

Quizplus · Accepted Answer

The demand curve intersects with the average total cost curve at a point where the firm is making a normal profit. This means that in the long run, firms will not make any economic profit and will be in long-run equilibrium. There is no indication that firms will exit or enter the market since the demand curve is not excessively high or low. The fact that the firm has a constant marginal cost of $12 per unit indicates that it is not operating at its efficient scale, which would occur when marginal cost equals average total cost.

A Monopolistically Competitive Firm Faces the Following Demand Curve for Its