If the eyeglass industry is monopolistically competitive,then in the long-run:
A) the price of eyeglasses will equal marginal revenue.
B) the price of eyeglasses will exceed marginal cost.
C) firms can earn economic profits.
D) firms are price takers.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms have some market power to set their own prices, and thus will set a price that exceeds marginal cost. While firms may initially earn economic profits in the short-run, in the long-run new firms will enter the market and competition will increase, driving profits down to zero. Firms are not price takers in a monopolistically competitive market. The price of eyeglasses will not equal marginal revenue, but rather will exceed it.

If the Eyeglass Industry Is Monopolistically Competitive,then in the Long-Run