Suppose a firm’s ATC is at its lowest value when the firm produces 12,000 units of...

Suppose a firm’s ATC is at its lowest value when the firm produces 12,000 units of output. If the firm operates in a typical monopolistic competitive market, then this firm will likely produce 12,000 units of output in the long run. If this firm operates in a typical perfectly competitive market, then the firm will likely produce more than 12,000 units of output in the long run.

true or False

The efficient scale for any firm is the level of output at which the average-total-cost curve is tangent to the demand curve.

True or False

Question text

In the long run, when a firm's demand curve is tangent to its average total cost curve, the firm could be a monopolistic competitor but not a perfect competitor.

True or False

When a profit-maximizing firm in a monopolistic competitive market is in long-run equilibrium, the firm operates at excess capacity since an increase in production would reduce average total cost.

True or false

Solutions

Expert Solution

Suppose a firm’s ATC is at its lowest value when the firm produces 12,000 units of output. If the firm operates in a typical monopolistic competitive market, then this firm will likely produce less than 12,000 units of output in the long run. If this firm operates in a typical perfectly competitive market, then the firm will likely produce exactly 12,000 units of output in the long run. So the statement given is FALSE.

The efficient scale for any firm is the level of output at which the average-total-cost curve is minimum and intersects the marginal cost curve.The statement given is FALSE.

In the long run, when a firm's demand curve is tangent to its average total cost curve, the firm could be a monopolistic competitor but not a perfect competitor. In perfectly competitive market the equilibrium is at P=MC=MR=AR or the demand curve. So the demand curve of perfectly competitive firm is horizontal and parallel to X-axis. In the long run the ATC is tangent to MR/AR or demand curve. The statement given is FALSE.

When a profit-maximizing firm in a monopolistic competitive market is in long-run equilibrium, the firm operates at excess capacity since an increase in production would reduce average total cost. The statement given is TRUE.

Rahul Sunny answered 4 weeks ago

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