In equilibrium under monopolistic competition:

Question

Quizplus · Accepted Answer

In monopolistic competition, firms have some market power and can charge a price higher than the marginal cost. This means that the marginal revenue of each firm is less than the price. In the long run, firms may earn zero economic profits as new firms can enter the market, leading to more competition and downward pressure on prices. However, in the short run, firms may earn positive or negative economic profits. Therefore, option A and B are incorrect. Option C is also incorrect as the output level in monopolistic competition is usually below the socially efficient level due to the excess of price over marginal cost.

In Equilibrium Under Monopolistic Competition