What happens when a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium

Question

Quizplus · Accepted Answer

In long-run equilibrium in a monopolistically competitive market, the firm will produce where price equals average total cost (ATC), which is higher than marginal cost (MC). Therefore, the firm will be charging a price that exceeds marginal cost, leading to a markup between price and marginal cost. This is because firms in monopolistically competitive markets have some degree of market power due to product differentiation, which allows them to charge higher prices than their marginal cost. Therefore, choice B is the correct answer. Choices A, C, and D are not true in general and are not necessarily related to long-run equilibrium in a monopolistically competitive market.

What Happens When a Profit-Maximizing Firm in a Monopolistically Competitive