In long-run equilibrium,a firm in monopolistic competition is similar to a monopoly because it:
A)earns no economic profit.
B)charges a price equal to marginal cost.
C)charges a price greater than marginal cost.
D)charges a price equal to average total cost.

Question

Quizplus · Accepted Answer

In the long-run equilibrium, a firm in monopolistic competition produces at a quantity where marginal revenue equals marginal cost, which is less than the quantity at which average total cost is minimized. Therefore, the firm charges a price greater than marginal cost, as it has some market power due to product differentiation. As a result, it earns a normal profit, but not zero economic profit, similar to a monopoly.

In Long-Run Equilibrium,a Firm in Monopolistic Competition Is Similar to a Monopoly