Which of the following is true for a monopolistically competitive firm in long-run equilibrium?
A)P = ATC and MR = MC.
B)P = ATC and P = MC.
C)P ATC and P MR.
D)P MR and MC = ATC.

Question

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?
A)P = ATC and MR = MC.
B)P = ATC and P = MC.
C)P > ATC and P > MR.
D)P > MR and MC = ATC.

Quizplus · Accepted Answer

In the long-run equilibrium of a monopolistically competitive firm, the firm produces where MR=MC to maximize profits. However, due to the presence of product differentiation, the firm charges a price higher than the minimum average total cost (ATC) to cover its fixed costs. As the firm is earning normal profits, P=ATC. Therefore, the correct answer is A, where both P=ATC and MR=MC in the long-run equilibrium.

Which of the Following Is True for a Monopolistically Competitive