Long-run equilibrium under monopolistic competition requires that
A)the demand curve intersect the average cost curve.
B)the demand curve be tangent to the average cost curve.
C)price be equal to marginal cost.
D)quantity produced be at the point where average cost is at a minimum.

Question

Quizplus · Accepted Answer

In the long run, firms in monopolistic competition will continue to enter and exit the market until they reach a point where they are earning zero economic profit. This occurs when the demand curve is tangent to the average cost curve, which means that price is equal to average cost. At this point, the firm is producing at an efficient scale and is not earning any above-normal profits. Therefore, the correct answer is B.

Long-Run Equilibrium Under Monopolistic Competition Requires That