In the long-run equilibrium of a monopolistically competitive industry,

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Quizplus · Accepted Answer

In monopolistic competition, firms have some market power which allows them to charge a price higher than their minimum average total cost (ATC), but they also face some competition, which prevents them from charging a price too far above their marginal cost (MC). In the long-run equilibrium, firms in a monopolistically competitive industry will produce where their marginal revenue (MR) equals their MC, just like a perfectly competitive firm. However, unlike in perfect competition, their price will be higher than their MC, as they are able to differentiate their product and create some market power. The price will typically be equal to or slightly above their average total cost (ATC), but not as low as their minimum ATC. Therefore, the correct answer is B, P > minimum ATC.

In the Long-Run Equilibrium of a Monopolistically Competitive Industry