In long-run equilibrium in monopolistic competition:
A)price is greater than average total cost
B)price is equal to average total cost at an output less than the output at which average total cost is minimized.
C)price is equal to average total cost at its minimum.
D)price is equal to average total cost at an output greater than the output at which average total cost is minimized.

Question

Quizplus · Accepted Answer

In long-run equilibrium in monopolistic competition, price is equal to average total cost at an output less than the output at which average total cost is minimized. This is because in monopolistic competition, firms have some market power and can charge a markup over their costs. However, in the long run, new firms can enter the market and compete away some of this market power, leading to firms earning zero economic profits. At this point, the price will be equal to the minimum of the average total cost curve, but output will be less than the output at which average total cost is minimized due to the markup.

In Long-Run Equilibrium in Monopolistic Competition