When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity,
A)its average revenue will equal its marginal cost.
B)its marginal revenue will exceed its marginal cost.
C)it will be earning positive economic profits.
D)its demand curve will be tangent to its average total cost curve.

Question

Quizplus · Accepted Answer

In the long-run equilibrium of a monopolistically competitive market, the firm produces where marginal revenue equals marginal cost, but because the demand curve is downward sloping, the price exceeds marginal revenue. Therefore, the demand curve will be tangent to the average total cost curve. In the long-run, the firm earns zero economic profits because the entry of new competitors will decrease demand for its products and drive down its price.

When a Profit-Maximizing Firm in a Monopolistically Competitive Market Is