Multiple Choice
Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
89
views
13. Monopolistic Competition
Characteristics of Monopolistic Competition
Multiple Choice
Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
A
It is a price taker.
B
It faces a perfectly elastic demand curve.
C
It earns zero economic profit.
D
It produces at the minimum point of its average total cost curve.
Verified step by step guidance1
Step 1: Understand the characteristics of a monopolistically competitive firm. Such a firm has many competitors, differentiated products, and some control over price, unlike a perfectly competitive firm which is a price taker.
Step 2: Recall that in the long-run equilibrium, firms in monopolistic competition earn zero economic profit because if there were profits, new firms would enter, increasing competition and driving profits down to zero.
Step 3: Recognize that a monopolistically competitive firm faces a downward-sloping demand curve, not a perfectly elastic one, because of product differentiation and some market power.
Step 4: Note that the firm does not produce at the minimum point of its average total cost (ATC) curve in the long run, unlike perfect competition. Instead, it produces where marginal cost (MC) equals marginal revenue (MR), but ATC is not minimized.
Step 5: Conclude that the true statement about a monopolistically competitive firm in long-run equilibrium is that it earns zero economic profit.
Related Videos
Related Practice
