Suppose the point of tangency that characterizes long-run equilibrium for a monopolistically competitive firm occurs at Q₁ units of output.This level of output,Q₁,

Question

Quizplus · Accepted Answer

In a monopolistic competition, the point of tangency of the demand curve and the average total cost curve occurs where price equals average total cost. At this point, the firm earns zero economic profit in the long run. As a result, the level of output at this point should fall short of the level of output at which marginal cost equals price, which is the point of output where the socially optimal level of output would occur. Thus, choice C is the correct answer.

Suppose the Point of Tangency That Characterizes Long-Run Equilibrium for a Monopolistically