In the long run in monopolistic competition,
A) economic profits are zero.
B) P = MC.
C) P = minimum ATC.
D) firms have an incentive to leave.
E) the demand curve is tangent to the MC curve.

Question

Quizplus · Accepted Answer

In the long run in monopolistic competition, economic profits are zero due to the presence of low barriers to entry allowing for new firms to enter the market and compete away any profits. Therefore, there is no incentive for firms to leave the market. While P may be above MC and minimum ATC in the short run, in the long run firms will adjust their output and prices to achieve zero economic profits. The demand curve will also not necessarily be tangent to the MC curve in the long run.

In the Long Run in Monopolistic Competition