In the long run,monopolistically competitive firms:
A) charge prices equal to marginal cost.
B) have excess capacity.
C) produce at the minimum of average total cost.
D) have excess capacity and produce at the minimum of average total cost.

Question

Quizplus · Accepted Answer

Monopolistically competitive firms have some degree of market power and differentiate their products, leading to excess capacity in the long run. They do not produce at the minimum of average total cost, as they have to invest in product differentiation and advertising. They also do not charge prices equal to marginal cost, as they have some market power. Therefore, the only correct statement is that they have excess capacity in the long run.

In the Long Run,monopolistically Competitive Firms