Why must long-run equilibrium in monopolistic competition occur at the point at which the demand curve is tangent to the average total cost curve?
What will be an ideal response?
If the demand curve cuts through the average total cost curve, the demand curve would be above the average cost curve at some levels of output. Producing at these levels of output would result in a positive profit. Positive profit would attract new firms, resulting in a leftward shift of the firm's demand curve. If the demand curve were always below the average cost curve, firms would be incurring losses and some would leave the industry, resulting in a shift of the demand curve to the right. For the industry to be in long-run equilibrium, firms must be earning zero economic profit. This means that the firm's demand curve must be tangent to its average total cost curve.
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The relationship between the level of prices and total quantity of goods and services producers are willing to supply is represented by the
A) aggregate supply curve. B) aggregate demand curve. C) sticky price curve. D) GDP multiplier.
If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of
a. cash and checks. b. double-entry bookkeeping. c. barter. d. financial intermediaries.
If a product has a high marginal utility, then
A. The demand curve will be downward-sloping. B. A consumer is willing to pay a high price for it. C. Consumers will not purchase any more of the good. D. Consumers will also have a low total utility.
What are the main features of the Robinson-Patman Act?
What will be an ideal response?