In the long run,a firm in monopolistic competition will produce

Question

Quizplus · Accepted Answer

In monopolistic competition, firms have some market power and can charge a price higher than their marginal cost, but face competition from other firms selling similar products. Therefore, firms in monopolistic competition will not produce at the output level where price equals marginal cost (as in perfect competition), but will instead produce where price equals average total cost. However, they will not necessarily produce at the output level where average total cost is minimized, since they may choose to produce at a smaller scale to have a more unique product or higher price. Therefore, the best answer is B, where price equals average total cost, but average total cost is not at its minimum.

In the Long Run,a Firm in Monopolistic Competition Will Produce