In the long run, monopolistically competitive firms end up producing at a price equal to that of competitive markets.

Question

Quizplus · Accepted Answer

Monopolistically competitive firms have some market power and can charge a slightly higher price than in perfectly competitive markets. This allows them to earn positive economic profits in the short run. However, in the long run, new firms enter the market and create more competition, causing the demand curve for each firm to shift leftward and reducing their market power. Eventually, they will produce at a price equal to their average total cost, just like in perfectly competitive markets.

In the Long Run, Monopolistically Competitive Firms End Up Producing