Equating price and marginal cost would lead to positive economic gains for monopolistically competitive firms.

Question

Quizplus · Accepted Answer

Equating price and marginal cost would actually lead to negative economic gains for monopolistically competitive firms. This is because these firms have some degree of market power and can charge a price above their marginal cost, allowing them to earn economic profits in the short-run. Equating price and marginal cost would eliminate these economic profits and reduce incentives for firms to innovate and differentiate their products, leading to lower levels of output and welfare in the long-run.

Equating Price and Marginal Cost Would Lead to Positive Economic