Table 16-1
A monopolistically competitive firm faces the following demand curve for its product:

-Refer to Table 16-1.The firm has total fixed costs of $40 and a constant marginal cost of $2 per unit.Which outcome will result

Question

Table 16-1
A monopolistically competitive firm faces the following demand curve for its product:
 
-Refer to Table 16-1.The firm has total fixed costs of $40 and a constant marginal cost of $2 per unit.Which outcome will result

Quizplus · Accepted Answer

In the long run, a monopolistically competitive firm will earn zero economic profits. The demand curve in Table 16-1 is relatively elastic, meaning that there are close substitutes for the firm's product. Therefore, the firm will not be able to charge a price higher than marginal cost in the long run. The marginal cost of producing each unit is constant at $2, so the firm's average total cost will also be constant beyond a certain level of output. Thus, the firm can produce any level of output and earn zero economic profit in the long run. Since the market is in long-run equilibrium, there will be no incentive for firms to enter or exit the market. Finally, we cannot determine whether the firm is operating at efficient scale based on the information provided.

Table 16-1 a Monopolistically Competitive Firm Faces the Following Demand Curve for Curve