If a perfectly competitive firm and a monopolistic competitor in long run equilibrium face exactly the same demand and cost curves, then there is high probability that
A)the former will earn zero economic profits, but the latter will earn positive economic profits.
B)both will earn zero economic profits, but the former will attain lower unit costs than the latter.
C)both will earn zero economic profits, but the latter will attain lower unit costs than the former.
D)both firms will earn zero economic profits, and attain the lowest possible unit costs.
E)neither firm will earn zero economic profits, but both will attain the lowest possible unit costs.

Question

Quizplus · Accepted Answer

In long run equilibrium, a perfectly competitive firm earns zero economic profits due to free entry and exit in the market, leading to price equaling the minimum of average total cost. A monopolistic competitor also earns zero economic profits in the long run, as new firms enter the market attracted by short-term profits, increasing competition and driving down prices. However, due to product differentiation and lack of perfect substitutes, monopolistic competitors do not produce at the minimum of the average total cost curve, leading to higher unit costs compared to perfectly competitive firms.

If a Perfectly Competitive Firm and a Monopolistic Competitor in Long