In the long run, the prices charged by a firm in monopolistic competition will be
A)high enough to provide profits to the firm.
B)so low that many firms will drop out of the industry.
C)equal to marginal cost.
D)equal to average cost, including the opportunity cost of capital.

Question

Quizplus · Accepted Answer

In the long run, firms in monopolistic competition will adjust their output and prices such that they will make zero economic profit, meaning prices will equal average costs, including the opportunity cost of capital. This is because new firms will enter the market if there are profits to be made, driving down prices until profits are eliminated.

In the Long Run, the Prices Charged by a Firm