In the long run,a monopolistically competitive firm will not produce at the output level that minimizes average cost because _____

Question

Quizplus · Accepted Answer

In monopolistically competitive market, the firms face downward-sloping demand curve and produce at a point where MR=MC. However, due to product differentiation and market power, the firms are not able to produce at an efficiency level that minimizes average cost. The output level at which MC=MR may not be the output level that corresponds to the minimum point of the firm's average cost curve. Hence, the firm will produce at a level where MC is greater than MR, resulting in a higher price compared to the perfectly competitive market. Therefore, option B is the correct answer.

In the Long Run,a Monopolistically Competitive Firm Will Not Produce