A monopolistically competitive firm in the long run will
A)have a demand curve tangent to its AC.
B)have a demand curve below its AC.
C)have a demand curve above its AC.
D)operate where excessive profit can be achieved.

Question

Quizplus · Accepted Answer

In the long run, a monopolistically competitive firm will have a demand curve tangent to its average cost (AC) curve, meaning it will be producing at the minimum efficient scale. This happens because in the long run, entry and exit of firms leads to a situation where economic profits are driven to zero. Therefore, the firm will adjust its price and output level to maximize its profit at the point where its marginal revenue (MR) equals its marginal cost (MC), which is also the point where the demand curve is tangent to the AC curve.

A Monopolistically Competitive Firm in the Long Run Will