Figure: Firms in Monopolistic Competition (Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition.A long-run equilibrium is illustrated at the profit-maximizing price ________ in panel _.

Question

Figure: Firms in Monopolistic Competition   (Figure: Firms in Monopolistic Competition) Look at the figure Firms in Monopolistic Competition.A long-run equilibrium is illustrated at the profit-maximizing price ________ in panel _.

Quizplus · Accepted Answer

In the long-run equilibrium, the price equals the average total cost (ATC) and the firms earn zero economic profits. In the figure, the profit-maximizing price is where the marginal cost (MC) curve intersects the marginal revenue (MR) curve, which is at point J. At this price, the quantity demanded is Q, and the firm produces that quantity where the MC curve intersects the ATC curve, which is at point M. Therefore, the long-run equilibrium price is H in panel B, and the firms are producing at point I in panel C.