For monopolistically competitive firms in long-run equilibrium,

Question

Quizplus · Accepted Answer

In monopolistic competition, firms produce differentiated goods, so they have some market power to set their price. In the long run, firms in monopolistic competition will earn zero economic profit. Therefore, at the profit-maximizing quantity, the firm's marginal revenue must equal its marginal cost. At this point, the demand curve must be tangent to the average total cost curve since the firm is earning a normal profit, and the price and quantity combination is sustainable in the long run. Therefore, the correct choice is D.

For Monopolistically Competitive Firms in Long-Run Equilibrium