Which of the following characterize a firm in monopolistic competition in the long run?
i.operating at the minimum efficient scale
ii.markups of price over marginal cost
iii.zero economic profit
A) i and ii
B) i and iii
C) ii and iii
D) i, ii, and iii
E) only ii

Question

Quizplus · Accepted Answer

In monopolistic competition, firms have some degree of market power which allows them to charge a markup over marginal cost, leading to ii being correct. In the long run, these firms also tend to earn zero economic profit due to the entry of new firms, making iii correct. However, they do not necessarily operate at the minimum efficient scale, as their product differentiation and market power allow them to sustain operations without achieving minimum costs.

Which of the Following Characterize a Firm in Monopolistic Competition