In the long run, a monopolistically competitive firm will
A)produce a greater variety of goods than do firms in other market structures
B)produce a greater output level than would a perfectly competitive firm
C)produce where price equals average total cost
D)earn an economic profit
E)suffer a loss because of its advertising budget

Question

Quizplus · Accepted Answer

In the long run, monopolistically competitive firms will operate where their price equals their average total cost, as they face downward sloping demand curves and will not be able to sustain economic profit in the long run. They may produce a greater variety of goods than perfectly competitive firms, but this does not necessarily mean they will produce a greater output level or earn an economic profit. The impact of advertising on profits would depend on the effectiveness of the advertising in creating brand loyalty and increasing demand for the firm's products.

In the Long Run, a Monopolistically Competitive Firm Will