In the long run, a monopolistically competitive firm sets output so that
A)P = MC.
B)MR = MC.
C)MR = P.
D)P = AVC.
E)MR = AVC.

Question

Quizplus · Accepted Answer

In the long run, monopolistically competitive firms operate at a level of output where marginal revenue (MR) equals marginal cost (MC). This is because firms in monopolistically competitive markets have some degree of market power and can set their own price, but they also face competition from other similar firms. Therefore, the profit-maximizing level of output is where MR equals MC, just like in perfect competition. Options A and C are incorrect because price (P) may be higher than marginal cost (MC) in the short run due to the firm's market power, but in the long run, the firm will adjust output until MR equals MC. Options D and E are incorrect because average variable cost (AVC) is not directly related to profit maximization, only marginal cost is.

In the Long Run, a Monopolistically Competitive Firm Sets Output