In the long-run equilibrium, a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.

Question

Quizplus · Accepted Answer

In the long-run equilibrium, a monopolistically competitive firm may produce an output level that is less than the allocatively efficient level, as it still has some market power which results in a higher price than the perfectly competitive price. Therefore, the firm may not be producing the socially optimal level of output.

In the Long-Run Equilibrium, a Monopolistically Competitive Firm Earning Normal