JAMB UTME - Economics - 2005 | Green Bridge CBT

Question 1 Report

In the long run, the equilibrium point of a monoplistic firm is a point where the

marginal cost curve is tangential to the average fixed cost curve

demand curve is tangential to the average variable cost curve

supply cuvre is tangential to the marginal cost curve

demand curv is tangential to the average cost curve

Answer Details

In the long run, the equilibrium point of a monopolistic firm is a point where the demand curve is tangential to the average cost curve. In economics, a monopolistic firm is a market structure in which there is only one seller of a particular product or service. This gives the firm the power to set its price above the marginal cost, leading to economic profits in the short run. However, in the long run, other firms may enter the market, eroding the monopoly power and bringing the price down to the average cost level. At the long-run equilibrium point, the firm produces the quantity of output at which the price equals the average cost, and there is no incentive for other firms to enter the market. The demand curve is tangential to the average cost curve at this point, which means that the firm is earning zero economic profit. This is because if the firm charges a higher price, it will lose customers to the competitors, and if it charges a lower price, it will earn less revenue than the cost of producing the goods. Therefore, the firm has no incentive to change the price or the quantity of output in the long run, and it operates at the efficient scale of production. Thus, the demand curve being tangential to the average cost curve is a good measure of long-run equilibrium point for a monopolistic firm.






Press & Hold to Drag Around
Click Here to Close