econ help pleaaase-this makes no sense to me:(?

Question

In a monopolistically competitive business in long-run equilibrium, the profit-maximizing price of the product is $10. Price also equals the average total cost. The minimum average total cost is less than $10.
Is this true? I think so but it doesn't make sense-anyone?

Answer 1

Since the average total cost curve is usually U-shaped, it can happen that in the equilibrium you are not in the minimum point of the ATC curve, but price equals ATC, therefore profit=0.

This situation can happen e.g. if in Cournot competition

demand is: Q=1000-1000p
total cost is: C(q)=0,28q+6,4

In this case in equilibrium (with free entrance):
p=36=ATC, although the minimum point of the ATC=28

Your example can be something similar.

Answer 2

This makes only a tiny bit of sense.

Part of the problem is the term "monopolistically competitive". If you have a true monopoly, there is one pricing model:

http://en.wikipedia.org/wiki/Monopoly

for a truly competitive market you have another:

http://en.wikipedia.org/wiki/Perfect_competition

The two are completely different (and neither matches anything in the real world)

Monopolists are concerned about the "profit maximizing" price. But their ability to exclude competition makes this much higher than their average costs.

In pure competition, the price is set to the marginal cost, which can be (as the previous answer noted) quite different from the average cost.

Theory says that to maximize productive efficiency, price should be the average cost, and that under "perfect" competition, each manufacturer will choose to produce a quantity such that this average cost should equal the marginal cost. But the assumptions behind this conclusion are very restrictive and unrealistic. (The economists argue that this is because we haven't ever seen "long-run equilibrium".)

(Also note that in perfect competition, there are no profits. Economists get around this by declaring "normal" profits to be part of the costs - which is clearly a cheat.)

So, you can answer "yes", "no", or "the question is ambiguous", whichever you prefer.

Answer 3

No that would not make sense in any respect i think of human beings checklist human beings for stupid stuff. I have been given stated because of the fact I instructed this individual I did`nt understand the question because of the fact he like wrote it in jap, that particularly ticked me off. He ought to`ve wrote in English yet he stated it for no good reason in any respect. I agree that reporting human beings at any point gets ridiculous yet you should earn your precise to thumbs down and thumps up that is stupid.