In the long run,monopolistic competitors will:
A)earn zero economic profits.
B)produce at the minimum of their ATC curves.
C)set price where MC = MR.
D)collude with other firms.

Question

Quizplus · Accepted Answer

In the long run, monopolistic competitors will earn zero economic profits because entry and exit are relatively easy in this market structure. If firms earn positive economic profits in the short run, new firms will enter the market, which will increase competition, decrease demand for existing firms, and lower prices. As a result, existing firms will eventually earn zero economic profits in the long run. Monopolistic competition is characterized by firms producing at a quantity where their marginal revenue (MR) equals marginal cost (MC), which may not be at the minimum of their average total cost (ATC) curve. Collusion with other firms is unlikely in monopolistic competition since each firm has some degree of market power and wants to differentiate itself from its competitors.

In the Long Run,monopolistic Competitors Will