In the long run,monopolistically competitive firms charge prices:
A) equal to marginal cost.
B) below marginal cost.
C) equal to the minimum of average total cost.
D) above the minimum of average total cost.

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms have some degree of market power and can set prices above marginal cost. However, the extent to which they can do so is limited by competition. Firms will tend to set prices just above their average total cost in order to earn a positive profit in the long run. Therefore, the correct answer is (D) above the minimum of average total cost.

In the Long Run,monopolistically Competitive Firms Charge Prices