QUESTION 9 Suppose for some firm that average total cost is

QUESTION 9 Suppose for some firm that average total cost is minimized at Q units of output. For a monopolistically competitive firm in long-run equilibrium, Q a. is also the level of output at which marginal cost equals average total cost b.exceeds the level of output at which there is a point of tangency between the demand curve and the average total cost curve. c. exceeds the level of output at which marginal revenue equals marginal cost. d. All of the above are correct.

Solution

Question 9

In long-run equilibrium, a monopolistically competitive firm produces that level of output corresponding to which demand curve is tangent to the average total cost curve.

This point of tangency occurs before average total cost is at its minimum.

So, if Q₁ units of output is that level of output where average total cost is minimized then Q₁ exceeds the level of output at which there is a point of tangency between the demand curve and the average total cost curve.

Hence, the correct answer is the option (b).

Question 10

Following is the required table -

The constant marginal cost is $2.

MR exceeds MC upto the production of 5 units.

So,

The firm should produce 5 units in order to maximize the profit.

Hence, the correct answer is the option (b).

Q	P	TR	MR
0	30	0	0
1	27	27	27
2	24	48	21
3	21	63	15
4	18	72	9
5	15	75	3
6	12	72	-3
7	9	63	-9
8	6	48	-15
9	3	27	-21
10	0	0	-27