Use the following to answer question 87:
Figure: Possible Long-Run Outcome
-(Figure: Possible Long-Run Outcome)Use Figure: Possible Long-Run Outcome.In the figure,which price and quantity refer to a potential long-run profit-maximizing outcome for a firm producing in a monopolistically competitive market?

Question

Use the following to answer question 87:
Figure: Possible Long-Run Outcome 
-(Figure: Possible Long-Run Outcome)Use Figure: Possible Long-Run Outcome.In the figure,which price and quantity refer to a potential long-run profit-maximizing outcome for a firm producing in a monopolistically competitive market?

Quizplus · Accepted Answer

In a monopolistically competitive market, firms do not produce at the minimum of their average total cost curve, but instead produce where marginal revenue equals marginal cost. This occurs where the demand curve is tangent to the average total cost curve. In the figure, this occurs at point U1 where the demand curve intersects the average total cost curve, and where the marginal cost curve intersects the marginal revenue curve. At this point, the price is PS1 and the quantity is QS1.

Use the Following to Answer Question 87