What characteristics describe the long-run equilibrium in a monopolistically competitive market?
(i) price exceeds marginal cost
(ii) price equals average total cost
(iii) quantity produced is at each firm's efficient scale

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms face a downward-sloping demand curve, leading to a situation where price exceeds marginal cost (i). In the long run, firms enter and exit the market until economic profits are zero, meaning price equals average total cost (ii). However, unlike in perfect competition, firms do not necessarily produce at the minimum of average total cost, meaning they do not operate at their efficient scale (iii).

What Characteristics Describe the Long-Run Equilibrium in a Monopolistically Competitive