In the long run, a monopolistically competitive industry is characterized by all of the following, except
A)firms earning zero economic profits.
B)production that would exhibit lower costs per unit at higher output levels.
C)an efficient use of resources.
D)firms producing where price is above marginal cost.

Question

Quizplus · Accepted Answer

Monopolistically competitive industries are not necessarily efficient in their use of resources because firms in this type of industry have some degree of market power, which allows them to charge prices above marginal cost. This leads to a suboptimal allocation of resources and a loss of consumer surplus. However, in the long run, firms in this industry will earn zero economic profits because of the entry of new firms into the industry, which leads to increased competition and a reduction in market power. Additionally, since firms in this industry have some degree of market power, they may not be able to achieve the same level of cost savings as perfectly competitive firms, even at higher output levels.

In the Long Run, a Monopolistically Competitive Industry Is Characterized