Which of the following describes the relative positions of the demand curve and the average total cost (ATC)curve of a monopolistically competitive firm that earns a profit in the short run?
A)In the short run, the firm's demand curve will lie above its ATC curve. The demand curve will be tangent to the ATC curve in the long run.
B)In the short run, the firm's demand curve will lie below its ATC curve. The demand curve will be tangent to the ATC curve in the long run.
C)In the short run, the firm's demand curve will cross its ATC curve at the ATC curve's lowest point. The demand curve will be above the ATC curve in the long run.
D)In the short run, the firm's ATC curve will cross the demand curve at the profit-maximizing level of output. The demand curve will be tangent to the ATC curve in the long run.

Question

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm can earn a profit if its demand curve is above its ATC curve. In the long run, new firms enter the market, driving profits to zero, making the demand curve tangent to the ATC curve.

Which of the Following Describes the Relative Positions of the Demand