The following question are based on the following diagram for a monopolistically competitive firm:

-The long-run equilibrium price charged by the monopolistic competitor

Question

The following question are based on the following diagram for a monopolistically competitive firm:
 
-The long-run equilibrium price charged by the monopolistic competitor

Quizplus · Accepted Answer

In the long run, a monopolistically competitive firm will produce at the point where price equals average cost (P=AC). This is because there are no barriers to entry, so firms will enter and exit the market until profits are zero. Thus, the long-run equilibrium price tends towards average cost. Option A is incorrect because the price charged will be above marginal cost, as the firm has some degree of market power. Option C is incorrect because firms in a monopolistically competitive market differentiate their products, leading to different prices. Option D is incorrect because in the long run, the firm will produce where price equals average cost, which is lower than the monopolistic price. Option E is incorrect because the monopolist has more market power and can charge a higher price than a monopolistically competitive firm.

The Following Question Are Based on the Following Diagram for a Monopolistically