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 maximising 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 lies above its ATC curve, allowing it to sell its product at a price higher than the average total cost. In the long run, due to the entry of new firms and the erosion of economic profits, the demand curve becomes tangent to the ATC curve, indicating zero economic profit.

Which of the Following Describes the Relative Positions of the Demand