When a firm's demand curve is tangent to its average total cost curve:
A) the firm must be operating in a monopolistically competitive market.
B) economic profits are zero.
C) the firm must be earning economic profits.
D) the firm must be incurring economic losses.

Question

Quizplus · Accepted Answer

When the demand curve is tangent to the average total cost curve, it means that the firm is producing at the level of output where economic profits are zero, also known as the breakeven point.

When a Firm's Demand Curve Is Tangent to Its Average