Figure 8.2
-Figure 8.2 shows demand and costs for a monopolistically competitive firm. In the long run we expect

Question

Quizplus · Accepted Answer

In the long run, monopolistically competitive firms will have a downward-sloping demand curve and a U-shaped average cost curve. In the long run, firms will produce where price equals average cost of production, represented by point E in the graph. Therefore, the best choice is B, where the firm will charge a price which is equal to its average cost of production. A is incorrect because the firm will not necessarily produce more output at a higher price in the long run. C is incorrect because the firm’s average cost of production is unlikely to decrease in the long run. D is incorrect because in the long run, the firm is expected to earn only a normal profit, not a greater profit.

Figure 8.2 -Figure 8.2 Shows Demand and Costs for a Monopolistically Competitive