In the long run, a monopolistically competitive firm produces a quantity that is
A)equal to the efficient scale.
B)less than the efficient scale.
C)greater than the efficient scale.
D)consistent with diseconomies of scale.

Question

Quizplus · Accepted Answer

In the long run, a monopolistically competitive firm produces at a quantity where average total cost is not minimized, which means it produces less than the efficient scale. This is because firms in monopolistic competition face downward-sloping demand curves and have some degree of market power, allowing them to set prices above marginal cost. However, entry of new firms in the long run erodes this power, leading to zero economic profit at a quantity less than the efficient scale.

In the Long Run, a Monopolistically Competitive Firm Produces a Quantity