Which of the following is true in monopolistic competition?
A) In the long run, the monopolistically competitive firm earns positive economic profit.
B) In the long run, monopolistic competition produces the output that would minimise average total cost.
C) In the long run, monopolistic competition produces less than the output that would minimise average total cost.
D) In the long run, the monopolistically competitive firm charges the same price as
A monopoly.

Question

Quizplus · Accepted Answer

In the long run, monopolistic competition produces less than the output that would minimise average total cost. This is because in monopolistic competition, firms have market power and can charge higher prices than in perfect competition. However, this also means that they face some competition and cannot charge as high of a price as a monopoly, which limits their profitability. As a result, they produce less than the output that would minimise average total cost in order to maximize their profits. The other options are incorrect because monopolistically competitive firms earn zero economic profit in the long run, do not produce the output that minimizes average total cost, and charge a lower price than a monopoly.

Which of the Following Is True in Monopolistic Competition