Exhibit 9-3 A monopolistic competitive firm in the long run

-As presented in Exhibit 9-3,the long-run profit-maximizing output for the monopolistic competitive firm is:

Question

Exhibit 9-3 A monopolistic competitive firm in the long run
 
-As presented in Exhibit 9-3,the long-run profit-maximizing output for the monopolistic competitive firm is:

Quizplus · Accepted Answer

In the long run, a monopolistic competitive firm operates at the point where marginal revenue equals marginal cost, as shown by the intersection of the MR and MC curves. At this output level, the firm charges a price higher than its marginal cost, leading to a positive economic profit. However, due to the presence of competition, other firms can enter the market, offering similar products and reducing the demand for the incumbent firm's product. As a result, the demand curve faced by the firm becomes more elastic, and the price it can charge falls. This process continues until the firm earns zero economic profit in the long run, which occurs at the output where the demand curve is tangent to the average total cost curve. In Exhibit 9-3, this occurs at an output level of 400 units per week, where the price is $6 per unit, and the average total cost is also $6 per unit. Thus, C) is the correct answer.

Exhibit 9-3 a Monopolistic Competitive Firm in the Long Run