Figure 11-14

Figure 11-14 illustrates a monopolistically competitive firm.
-Refer to Figure 11-14.Which of the following statements describes the firm depicted in the diagram?

Question

Figure 11-14
  
Figure 11-14 illustrates a monopolistically competitive firm.
-Refer to Figure 11-14.Which of the following statements describes the firm depicted in the diagram?

Quizplus · Accepted Answer

The firm is producing at the point where ATC is tangent to the demand curve (Q₀), indicating that it is not achieving allocative efficiency but is achieving productive efficiency. The price charged (P₀) is higher than the marginal cost (MC), indicating monopolistic competition. Since the average total cost (ATC) is equal to the price charged (P₀), the firm is breaking even and is in long-run equilibrium. Therefore, option D is correct. Option A and B are incorrect because there is no indication that the firm is making losses or will exit the industry. Option C is incorrect because producing at the point of lowest average total cost (Q₁) would result in even lower prices and lower profits.

Figure 11-14 Figure 11-14 Illustrates a Monopolistically Competitive Firm