If additional units of a good could be produced at a constant ...

[james0929]

If additional units of a good could be produced at a constant opportunity cost, the production possibilities frontier would be linear.
 
  Indicate whether the statement is true or false

Question 2

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?

[Joc]

Answer to Question 1

TRUE

Answer to Question 2

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.