Which of the following statements best describes the price,output,and profit conditions of monopolistic competition?
A) Price will equal marginal cost at the profit-maximizing level of output,and profits will be positive in the long run.
B) Price will always equal average variable cost in the short run,and either profits or losses may result in the long run.
C) Marginal revenue will equal marginal cost in the short run at a profit-maximizing level of output; in the long run,economic profit will be zero.
D) Marginal revenue will equal average total cost in the short run,and long-run economic profits are generally positive but could be zero.
E) Output is equal to the amount for which marginal revenue equals price.

Question

Quizplus · Accepted Answer

In monopolistic competition, the profit-maximizing level of output occurs where marginal revenue equals marginal cost in the short run. However, in the long run, economic profit will be zero due to the presence of easy entry and exit into the market, which will lead to firms entering if there are profits and exiting if there are losses, driving prices down to the point where economic profit is zero.

Which of the Following Statements Best Describes the Price,output,and Profit