In long-run equilibrium, a monopolistically competitive firm will produce
A)at the minimum average cost
B)at full capacity
C)along the downward-sloping portion of its ATC curve
D)along the upward-sloping portion of its ATC curve
E)at the minimum of marginal cost

Question

Quizplus · Accepted Answer

In long-run equilibrium, a monopolistically competitive firm will produce where it is producing at the lowest point of its average total cost (ATC) curve, which is the lowest average cost it can achieve while producing the quantity it wants. Therefore, the answer is C - along the downward-sloping portion of its ATC curve. This is because a monopolistically competitive firm will continue to modify its product and advertising to differentiate itself from its competitors, which leads to excess capacity and a less efficient production process than a perfectly competitive firm.

In Long-Run Equilibrium, a Monopolistically Competitive Firm Will Produce