In the long run, a monopolistic competitive firm will operate at a price which:
A) is higher than minimum long-run average cost.
B) equals minimum long-run average cost.
C) equals marginal cost.
D) none of the above.

Question

Quizplus · Accepted Answer

A monopolistic competitive firm will have some degree of market power, allowing it to charge a higher price than the perfectly competitive market price. However, in the long run, there will be entry of new firms and the market will become more competitive, forcing the firm to lower its price to remain competitive. Therefore, the long-run equilibrium price for a monopolistic competitive firm will be higher than the minimum long-run average cost, but lower than the short-run equilibrium price.

In the Long Run, a Monopolistic Competitive Firm Will Operate