In a monopolistically competitive market, if price is greater than average cost

Question

Quizplus · Accepted Answer

If price is greater than average cost, firms are earning profits which will attract new firms to enter the market in the long run. This increased competition will eventually drive down prices and reduce profits to a level where they are equal to zero. This is the long-run equilibrium condition in monopolistically competitive markets where firms earn zero economic profit.

In a Monopolistically Competitive Market, If Price Is Greater Than