In the long run,if a monopolistically competitive firm produces the optimal level of output:
A)P = ATC = MR = MC.
B)P ATC MR = MC.
C)P = ATC MR MC.
D)P = ATC MR = MC.

Question

In the long run,if a monopolistically competitive firm produces the optimal level of output:
A)P = ATC = MR = MC.
B)P > ATC > MR = MC.
C)P = ATC > MR > MC.
D)P = ATC > MR = MC.

Quizplus · Accepted Answer

In a monopolistically competitive market, firms are able to differentiate their products through various means such as branding or unique features, resulting in a downward sloping demand curve. In the long run, firms in this market will produce where marginal revenue (MR) equals marginal cost (MC). However, due to product differentiation, firms will not be able to charge the same price as their marginal cost or they will not be able to cover their fixed costs. Therefore, firms will choose to produce at a price where P = ATC (average total cost), which is greater than MC. Hence, the optimal level of output is at P = ATC > MR = MC.

In the Long Run,if a Monopolistically Competitive Firm Produces the Optimal