In the long run, the output of a monopolistically competitive firm
A)exceeds that of an otherwise similar perfectly competitive firm
B)is less than that of an otherwise similar perfectly competitive firm
C)is at the point at which LRAC is minimized
D)equals that of an otherwise similar perfectly competitive firm
E)is less than that of an otherwise similar monopolist

Question

Quizplus · Accepted Answer

Monopolistically competitive firms have some degree of market power and charge higher prices than perfectly competitive firms. As a result, their output is less than that of an otherwise similar perfectly competitive firm in the long run. In a perfectly competitive market, firms produce at the point where LRAC is minimized, but monopolistically competitive firms face a downward sloping demand curve and will produce where MR=MC, which may not necessarily be at the minimum LRAC point. Monopolists, on the other hand, have even greater market power than monopolistically competitive firms and can restrict output even more, leading to even lower output levels.

In the Long Run, the Output of a Monopolistically Competitive