-Refer to the above figure. Which panels represent long run equilibrium for the perfectly competitive firm and monopolistic competitive firm, respectively?

Question

Quizplus · Accepted Answer

In long-run equilibrium, a perfectly competitive firm will produce at a point where price equals marginal cost (MC) and average total cost (ATC), ensuring zero economic profit. This is depicted in Panel C. A monopolistically competitive firm, in its long-run equilibrium, will also produce where price equals ATC, but due to product differentiation and market power, it does not produce where price equals MC, leading to excess capacity. This scenario is shown in Panel B.

-Refer to the Above Figure