Author Question: If additional units of a good could be produced at a constant opportunity cost, the production ... (Read 114 times)

james0929

  • Hero Member
  • *****
  • Posts: 586
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

  • Sr. Member
  • ****
  • Posts: 317
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.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Opium has influenced much of the world's most popular literature. The following authors were all opium users, of varying degrees: Lewis Carroll, Charles, Dickens, Arthur Conan Doyle, and Oscar Wilde.

Did you know?

Vaccines prevent between 2.5 and 4 million deaths every year.

Did you know?

Stevens-Johnson syndrome and Toxic Epidermal Necrolysis syndrome are life-threatening reactions that can result in death. Complications include permanent blindness, dry-eye syndrome, lung damage, photophobia, asthma, chronic obstructive pulmonary disease, permanent loss of nail beds, scarring of mucous membranes, arthritis, and chronic fatigue syndrome. Many patients' pores scar shut, causing them to retain heat.

Did you know?

The lipid bilayer is made of phospholipids. They are arranged in a double layer because one of their ends is attracted to water while the other is repelled by water.

Did you know?

Increased intake of vitamin D has been shown to reduce fractures up to 25% in older people.

For a complete list of videos, visit our video library