How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?
A)A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit.
B)A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production.
C)A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.
D)A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level.

Question

Quizplus · Accepted Answer

In the long run, monopolistically competitive firms do not produce at the lowest point on their average cost curve due to excess capacity, while perfectly competitive firms produce at the lowest average cost, achieving productive efficiency.

How Does the Long-Run Equilibrium of a Monopolistically Competitive Industry