When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,
A)the demand curve will be perfectly elastic.
B)price exceeds marginal cost.
C)marginal cost must be falling.
D)marginal revenue exceeds marginal cost.

Question

Quizplus · Accepted Answer

In long-run equilibrium in a monopolistically competitive market, price will exceed marginal cost as the firm has some market power to set prices above marginal cost. However, the demand curve will not be perfectly elastic as there are still differentiated products and some ability for the firm to influence price through product differentiation. Marginal cost may or may not be falling depending on the specific circumstances of the market, and marginal revenue may or may not exceed marginal cost.

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