Over the long run, a monopolistically competitive seller will:
A) take a loss and not operate at the lowest point on its long-run average total cost curve.
B) earn an economic profit and operate at the lowest point on its long-run average total cost curve.
C) earn only a normal profit and operate at the lowest point on its long-run average total cost curve.
D) earn only a normal profit and not operate at the lowest point on its long-run average total cost curve.

Question

Quizplus · Accepted Answer

In the long run, a monopolistically competitive firm will earn only a normal profit due to the entry of new firms in the market, which erodes any economic profit. Additionally, because of product differentiation and the lack of production at minimum average total cost, these firms do not operate at the lowest point on their long-run average total cost curve.

Over the Long Run, a Monopolistically Competitive Seller Will