In the long run, a monopolistic competitive firm will operate at a price which:
A) is higher than minimum long-run average cost.
B) equals minimum long-run average cost.
C) equals marginal cost.
D) none of these.

Question

Quizplus · Accepted Answer

A monopolistic competitive firm will operate at a price higher than minimum long-run average cost because it needs to have some market power to differentiate its product and attract customers. Therefore, it will not operate at the perfectly competitive price level, which is equal to minimum long-run average cost, nor at the level of marginal cost, which would not allow it to cover all its costs and make a profit.

In the Long Run, a Monopolistic Competitive Firm Will Operate