Monopolistic competition in long-run equilibrium is characterized by
A)excess capacity.
B)higher cost per unit of output than under perfect competition.
C)inefficiency in use of resources.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

In the long-run equilibrium of monopolistic competition, there is excess capacity because firms do not produce at the minimum efficient scale. This results in higher costs per unit of output compared to perfect competition. Additionally, there is inefficiency in the use of resources because firms in monopolistic competition have some degree of market power, allowing them to set prices higher than marginal cost. Thus, all three options are correct.

Monopolistic Competition in Long-Run Equilibrium Is Characterized by