Narrbegin Exhibit 9.2 A monopolistically competitive firm
-As presented in Exhibit 9.2, the long-run profit-maximising output for the monopolistically competitive firm is:

Question

Narrbegin Exhibit 9.2 A monopolistically competitive firm  
-As presented in Exhibit 9.2, the long-run profit-maximising output for the monopolistically competitive firm is:

Quizplus · Accepted Answer

In monopolistic competition, the long-run equilibrium occurs where the firm produces at the point where price equals average total cost (ATC) but the price charged is greater than the marginal cost (MC). From the graph, we can see that at a quantity of 200 units per week, the price charged (P) is equal to ATC, and the marginal revenue (MR) is equal to MC. Therefore, the firm is making zero economic profit in the long-run at that output level, but is still producing a positive quantity of goods. Any output level lower than 200 would generate losses and any output level higher than 200 would generate diminishing marginal returns and therefore would reduce profits.