A firm in a monopolistically competitive market makes no economic profit in the long run because
A)long-run marginal cost will be too high to make any economic profit.
B)long-run price will be equal to long-run marginal cost.
C)long-run marginal cost will be equal to long-run marginal revenue.
D)long-run price will be equal to long-run average cost.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms will have some degree of market power but there will also be competition from other firms offering similar but not identical products. This means that in the long run, new firms will enter the market and existing firms will exit until firms are earning zero economic profit. In the long run, a firm in a monopolistically competitive market will produce at the point where long-run price equals long-run average cost, which will result in zero economic profit. Therefore, the correct answer is D - long-run price will be equal to long-run average cost.

A Firm in a Monopolistically Competitive Market Makes No Economic