Suppose that a monopolistically competitive market is at the long-run equilibrium.Based on this information,which of the following conclusions is NOT true?
A) P MC.
B) Deadweight loss is zero.
C) P = ATC minimum of ATC.
D) Firms' profits are zero.

Question

Suppose that a monopolistically competitive market is at the long-run equilibrium.Based on this information,which of the following conclusions is NOT true?
A) P > MC.
B) Deadweight loss is zero.
C) P = ATC > minimum of ATC.
D) Firms' profits are zero.

Quizplus · Accepted Answer

In a monopolistically competitive market at long-run equilibrium, firms face a downward-sloping demand curve, leading to a price (P) that is greater than marginal cost (MC), indicating P > MC. Firms earn zero economic profit in the long run, as new firms enter the market when there are profits, and exit when there are losses, until profits are driven to zero. This is consistent with P = ATC at the quantity produced, but P is greater than the minimum of ATC, indicating some inefficiency and excess capacity. Therefore, unlike in perfect competition, there is a deadweight loss due to the markup over marginal cost, making statement B incorrect.

Suppose That a Monopolistically Competitive Market Is at the Long-Run