In both competition and monopolistic competition,free entry and exit guarantee that the industry's output is produced at the least possible cost.

Question

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In monopolistic competition, firms have some degree of market power and therefore they are able to charge prices higher than the minimum average cost in the short run. As there are no barriers to entry, new firms enter the market, which increases competition and reduces market power of existing firms, causing prices to decrease. However, in the long run, firms may only break even, as price equals the minimum average cost, but not produce at the least possible cost.

In Both Competition and Monopolistic Competition,free Entry and Exit Guarantee