The figure below depicts a monopolistically competitive firm in long-run equilibrium.In this equilibrium,the profit-maximizing monopolistically competitive firm ________.

Question

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In long-run equilibrium, a monopolistically competitive firm produces at a level where its marginal cost equals its marginal revenue, which is less than its price because of its market power. Therefore, it earns zero economic profit. Choice A is incorrect because if the firm were earning positive economic profits, new firms would enter the market and compete away those profits. Choice B is incorrect because a monopolistically competitive firm cannot earn both positive and negative economic profits in long-run equilibrium because it would adjust its output until it earns zero economic profit. Choice D is incorrect because a firm that earns negative economic profits would exit the market, which would reduce the number of firms and increase the demand for the remaining firms' products, leading to higher prices and the potential for positive economic profits.

The Figure Below Depicts a Monopolistically Competitive Firm in Long-Run