Long-run equilibrium in perfect competition and in monopolistic competition are similar because in both models,firms _____ in the long run.
A)produce at the minimum point of the average total cost curve
B)set price equal to marginal cost
C)make zero economic profits
D)have excess capacity

Question

Quizplus · Accepted Answer

In the long-run equilibrium in both perfect competition and monopolistic competition, firms make zero economic profits. This is because in perfect competition, there are many firms competing with each other, which drives the market price down to the point where firms only earn enough revenue to cover their costs. In monopolistic competition, firms have some market power because they produce differentiated products, but they still face competition from other firms, which limits their ability to earn profits. As a result, in the long run, firms in both models make zero economic profits.

Long-Run Equilibrium in Perfect Competition and in Monopolistic Competition Are