The price in long-run equilibrium for a monopolistically competitive firm is _____ and output is _____,compared with that of a perfectly competitive firm with an identical production function and cost curves.
A)higher;higher
B)higher;lower
C)lower;higher
D)lower;lower

Question

Quizplus · Accepted Answer

In long-run equilibrium, a monopolistically competitive firm produces at a level where Marginal Revenue (MR) = Marginal Cost (MC). However, since the firm has some market power, it will set its price above its marginal cost, leading to a higher price compared to a perfectly competitive firm. The output level will be lower than that of a perfectly competitive firm as monopolistically competitive firms do not produce at the minimum point of their long-run average total cost curve.

The Price in Long-Run Equilibrium for a Monopolistically Competitive Firm