In the long run, firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits, but unlike perfectly competitive firms in the long run, monopolistically competitive firms
A)charge a price that is greater than average revenue.
B)charge a price that is equal to marginal cost.
C)do not produce at minimum average total cost.
D)charge a price that is equal to average total cost.

Question

Quizplus · Accepted Answer

In the long run, both monopolistically competitive and perfectly competitive firms earn zero economic profits. However, monopolistically competitive firms do not produce at minimum average total cost as they have some degree of market power and are able to charge a price above marginal cost. This results in a higher cost of production compared to perfectly competitive firms which produce at minimum average total cost. Therefore, choice (C) is correct.

In the Long Run, Firms in Both Monopolistically Competitive Markets