For a monopolistically competitive firm, in both the short run and the long run price is
A)below marginal cost.
B)equal to marginal cost.
C)greater than marginal cost.
D)below marginal revenue.
E)equal to marginal revenue.

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms are able to differentiate their products to some extent, giving them some pricing power. This means that in the short run, firms are able to charge a price that is above their marginal cost in order to make a profit. However, in the long run, other firms are able to enter the market and offer similar products, which puts pressure on prices. As a result, in the long run, firms in monopolistically competitive markets are only able to charge a price that is equal to their marginal cost. Therefore, the correct answer is C - greater than marginal cost.

For a Monopolistically Competitive Firm, in Both the Short Run