In the long run, the monopolistically competitive firm\'s demand curve will A) b
ID: 1128808 • Letter: I
Question
In the long run, the monopolistically competitive firm's demand curve will
A) become tangent to the ATC curve somewhere to the left of its minimum point.
B) intersect the ATC at its minimum point.
C) intersect the ATC curve somewhere past the minimum point.
D) become tangent to the ATC curve at its minimum point.
A) become tangent to the ATC curve somewhere to the left of its minimum point.
B) intersect the ATC at its minimum point.
C) intersect the ATC curve somewhere past the minimum point.
D) become tangent to the ATC curve at its minimum point.
Explanation / Answer
Answer
A) become tangent to the ATC curve somewhere to the left of its minimum point.
the monopolistically competitive firm's demand curve will become tangent to the ATC curve somewhere to the left of its minimum point
monopolistically competitive firm earn zero economic profit in the long run because of free entry and exit, if the market is in profit then some firms will enter and the demand share of the market for all firms decreases and the demand curve shifts to the left and become tangent to the ATC
if it is making losses in short run then some of the firms will exit and the demand curve shifts to the right and become tangent to ATC
but the firm produces at MR=MC, not the MC=P so the tangent point is not the minimum of ATC curve.
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