The figure below shows the revenue and cost curves of a monopolistically competitive firm. Figure: 11.2 In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC 1 and ATC 2 : Average total cost curves
MC: Marginal cost curve
-In Figure 11.2,if the market is monopolistically competitive,which quantity represents long-run equilibrium for the firm?
A)15
B)Between 15 and 40
C)40
D)55
E)60

Question

The figure below shows the revenue and cost curves of a monopolistically competitive firm. Figure: 11.2  In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC 1 and ATC 2 : Average total cost curves
MC: Marginal cost curve
-In Figure 11.2,if the market is monopolistically competitive,which quantity represents long-run equilibrium for the firm?
A)15 
B)Between 15 and 40 
C)40 
D)55 
E)60

Quizplus · Accepted Answer

In the long run, monopolistically competitive firms will earn zero economic profit, meaning they will produce where price equals average total cost (P=ATC). At the quantity where ATC is minimized (the bottom of the U-shaped curve), draw a horizontal line to intersect with the demand curve. From that point on the demand curve, draw a line straight down to the horizontal axis to find the quantity.

In this case, the quantity is 40 units, which is where the demand curve intersects the ATC curve at its minimum point. This represents the long-run equilibrium for the firm under monopolistic competition.

The Figure Below Shows the Revenue and Cost Curves of a Monopolistically