In the following diagram, in the equilibrium which one of the following is true ?
The diagram shows AR tangent to AC at the output selected by MR=MC, so price equals average cost and exceeds marginal cost. The output is left of minimum AC, implying excess…
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In the following diagram, in the equilibrium which one of the following is true ?
Answer and explanation
Correct answer A
The diagram shows AR tangent to AC at the output selected by MR=MC, so price equals average cost and exceeds marginal cost. The output is left of minimum AC, implying excess capacity. Thus price=AC=MC, MC=AR and no excess capacity each contradict the pictured differentiated-firm equilibrium.
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UGC NET Economics