The graph shows a firm\'s (monopolistic competition) demand (D), marginal revenu

Question

The graph shows a firm's (monopolistic competition) demand (D), marginal revenue (MR), marginal cost (MC), and long-run average cost (AC) curves 100.00 MC AC Does this industry show that it is in long-run equilibrium? This industry is 80.00 70 60 50.00 O A. not in long-run equilibrium because firms are O B. not in long-run equilibrium because firms are O C. not in long-run equilibrium because firms are O D. in long-run equilibrium because firms are breaking O E. not in long-run equilibrium because firms are breaking even, which will result in fims exiting ncurring losses, which will resulit in firms exiting incurring losses, which will result in firms entering 40.00 30 0.00 MR 9 10 earning a prott, which will result in firms entering Quantity Click to select your answer

Explanation / Answer

Answer is B. Not in the long run because firms are Incurring losses which result in firms exiting. Explanation: The MC curve cuts MR curve from below at an equilibrium output of 5 units wher AR is 65 and ATC is 80. Which means the firms are incurring losses, which is not the scenario of long run as in the long run the firms earns normal profits. Hence, in the long run, the firms will exit the industry and new equilbrium will be maintained wher the firms earn normal profit.

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