A monopolistic competitor in long-run equilibrium is like a perfect competitor in that

Question

Quizplus · Accepted Answer

In the long-run equilibrium, a monopolistic competitor produces where marginal revenue equals marginal cost, which results in a price higher than marginal cost. However, due to the existence of product differentiation, the firm has some degree of market power and can charge a price higher than its average total cost, resulting in positive economic profits. However, the entry of new firms into the market due to economic profits reduces the demand faced by each firm and eventually leads to a situation where the economic profits are zero in the long run. Therefore, like a perfect competitor, a monopolistic competitor earns zero economic profits in the long run equilibrium. So, option C is correct. Options A and D are incorrect because perfect competition involves producing at the minimum point of the average total cost curve, whereas monopolistic competition does not. Option B is incorrect because monopolistic competition results in a price higher than marginal cost, unlike perfect competition.

A Monopolistic Competitor in Long-Run Equilibrium Is Like a Perfect