The following graph shows the costs and revenues of a typical firm operating in a monopolistically competitive industry.

-What is true about the long-run equilibrium price of a monopolistically competitive firm?

Question

The following graph shows the costs and revenues of a typical firm operating in a monopolistically competitive industry.
 
-What is true about the long-run equilibrium price of a monopolistically competitive firm?

Quizplus · Accepted Answer

In the long-run equilibrium of a monopolistically competitive firm, price will equal average cost, as the firm will have adjusted its output level to maximize profits. However, due to the monopolistic competition, the price will exceed marginal cost, as the firm has some degree of market power and can set prices above the competitive level. Therefore, the correct answer is A, as it accurately describes the relationship between price and cost in the long-run equilibrium of a monopolistically competitive firm.

The Following Graph Shows the Costs and Revenues of a Typical