Figure 10-7

In Figure 10-7, through which point must a horizontal demand curve pass to yield a long-run equilibrium?

Question

Figure 10-7 ​

In Figure 10-7, through which point must a horizontal demand curve pass to yield a long-run equilibrium?

Quizplus · Accepted Answer

A horizontal demand curve represents perfect elasticity of demand, which means that consumers are highly sensitive to changes in price. In order to achieve long-run equilibrium, the firm must produce at the point where marginal cost (MC) equals marginal revenue (MR) and the output level at which price equals marginal cost (P=MC). This occurs at point A in the diagram, where the horizontal demand curve intersects the average total cost (ATC) curve at its minimum point. Therefore, a horizontal demand curve must pass through point A to yield long-run equilibrium.

Figure 10-7 ​ In Figure 10-7, Through Which Point Must a Horizontal Demand

Figure 10-7 In Figure 10-7, Through Which Point Must a Horizontal Demand