Use the following two statements about monopolistic competition to answer this question. I. In the long run, the price of the good will equal the minimum of the average cost.
II) In the short run, firms may earn a profit.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.

Question

Quizplus · Accepted Answer

In monopolistic competition, in the long run, firms earn zero economic profit as new firms enter the market, which means price equals average total cost, but not necessarily at the minimum of average cost. In the short run, firms can indeed earn profits.

Use the Following Two Statements About Monopolistic Competition to Answer