Which of the following describes the relative positions of the demand curve and the average total cost (ATC) curve of a monopolistically competitive firm that earns a profit in the short run?
A) In the short run, the firm's demand curve will lie above its ATC curve. The demand curve will be tangent to the ATC curve in the long run.
B) In the short run, the firm's demand curve will lie below its ATC curve. The demand curve will be tangent to the ATC curve in the long run.
C) In the short run, the firm's ATC curve will cross the demand curve at the profit maximizing level of output. The demand curve will be tangent to the ATC curve in the long run.
D) In the short run, the firm's demand curve will cross its ATC curve at the ATC curve's lowest point. The demand curve will be above the ATC curve in the long run.
Question 2
A monopolist's profit-maximizing price and output correspond to the point on a graph
A) where total costs are the smallest relative to price.
B) where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.
C) where average total cost is minimized.
D) where price is as high as possible.
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