In the long run, a monopolistically competitive firm charges a price that is
A)equal to marginal cost.
B)less than marginal cost.
C)greater than the minimum average total cost.
D)equal to the minimum average total cost.
E)equal to marginal revenue.

Question

Quizplus · Accepted Answer

In the long run, a monopolistically competitive firm operates on the downward-sloping portion of the demand curve, where marginal revenue is less than price. This means that the firm charges a price that is greater than marginal cost. However, the firm will not charge a price higher than the minimum average total cost in the long run, as this would result in losses. Therefore, the price charged by a monopolistically competitive firm is greater than the minimum average total cost, making choice C the correct answer.

In the Long Run, a Monopolistically Competitive Firm Charges a Price