Which of the following is true in monopolistic competition?
A)In the long run, the monopolistically competitive firm earns positive economic profit.
B)In the long run, monopolistic competition produces the output that would minimise average total cost.
C)In the long run, monopolistic competition produces less than the output that would minimise average total cost.
D)In the long run, the monopolistically competitive firm charges the same price as a monopoly.

Question

Quizplus · Accepted Answer

In the long run, monopolistic competition produces less than the output that would minimise average total cost. This is because firms in monopolistic competition face downward-sloping demand curves for their differentiated products, meaning they have some market power. As a result, they charge higher prices than perfect competitors and produce less output than would be produced in a perfectly competitive market, leading to higher average total costs. However, they do not earn positive economic profit in the long run due to entry and exit of firms.

Which of the Following Is True in Monopolistic Competition