A monopolistically competitive firm

Question

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In monopolistic competition, firms differentiate their products to make them distinct from each other, resulting in a downward-sloping demand curve. This means that the firm has market power and can set a price higher than its marginal cost. In the long run, other firms can enter the market to offer similar products, which will decrease the market power of the original firm and reduce its demand. This process will continue until the firms are earning zero economic profit in the long run, and they will produce at a quantity and price where marginal revenue equals marginal cost but won't necessarily produce at the minimum point of their ATC curve. Therefore, a monopolistically competitive firm earns no long-run economic profit, is allocatively inefficient, and does not produce at the minimum point of its ATC curve.

A Monopolistically Competitive Firm