A monopolistically competitive firm faces the following demand curve for its product:

The firm has total fixed costs of $40 and a constant marginal cost of $2 per unit.We can conclude that

Question

A monopolistically competitive firm faces the following demand curve for its product:

The firm has total fixed costs of $40 and a constant marginal cost of $2 per unit.We can conclude that

Quizplus · Accepted Answer

The demand curve is downward sloping, indicating that the firm has some market power. The constant marginal cost of $2 per unit suggests that the firm's average total cost curve will be downward sloping, as long as the firm produces enough output to spread its fixed costs over a large enough quantity of units. Therefore, the firm will be able to make at least normal profits in the long run, and there will be no incentive for firms to enter or exit the market. This implies that the market is in long-run equilibrium. Furthermore, we cannot determine from the given information whether the firm is operating at its efficient scale, as we do not know the firm's average total cost at its profit-maximizing output level.

A Monopolistically Competitive Firm Faces the Following Demand Curve for Its