Suppose the point of tangency that characterizes long-run equilibrium for a monopolistically competitive firm occurs at Q₁ units of output. This level of output, Q₁, A)exceeds the level of output at which marginal revenue equals marginal cost. B)exceeds the level of output at which marginal cost equals average total cost. C)falls short of the level of output at which price equals marginal cost. D)exceeds the firm's efficient scale of output.

Question

Quizplus · Accepted Answer

In long-run equilibrium for a monopolistically competitive firm, output is where price equals marginal cost (P=MC) and the firm is producing at the minimum point on the average total cost curve (where ATC is tangent to the demand curve). Therefore, output Q₁ falls short of the level of output at which price equals marginal cost, indicating that the firm is charging a markup over its marginal cost.

Suppose the Point of Tangency That Characterizes Long-Run Equilibrium for a Monopolistically