In the long run,entry ensures that the typical monopolistically competitive firm will
A)produce at minimum efficient scale
B)earn an economic profit
C)earn a normal profit
D)price its output at marginal cost
E)standardize its product

Question

Quizplus · Accepted Answer

In the long run, the entry of new firms into a monopolistically competitive market leads to an increase in competition, which results in the demand curve shifting leftward, decreasing the market price. As a result, the typical firms in this market will earn only a normal profit (i.e., zero economic profit) in the long run. They will produce at a level where they face an average cost curve tangent to the demand curve, which is less than or equal to minimum efficient scale. They will not price output at marginal cost, as they have market power and are able to charge a price above their marginal cost. Standardization of the product is not a feature of monopolistic competition, as firms differentiate their products to some extent.

In the Long Run,entry Ensures That the Typical Monopolistically Competitive