Question

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?

P > MC, P = ATC, and MR = MC

P > MC, P > ATC, and MR = MC

P < MC, P > ATC, and MR < MC

P < MC, P = ATC, and MR = MC

Answer 1

Answer :- Option 'a' is the correct Answer

When a monopolistically competitive firm is in long-run equilibrium its price will be greater than marginal cost, marginal revenue is equal to marginal cost and price will equals the average total cost.

Monopolistic competition is a market structure in which many companies sell products that are similar but not identical.

There are various characteristics of monopolistic competition, such as, many sellers, product slightly differentiation, free entry and exit.

Monopolistically competitive firms must lower their price to sell more output, therefore its demand curves are downward sloping.

Monopolistically competitive firms in long-run equilibrium are not productively efficient because they do not produce at minimum average total cost and they are not allocatively efficient because they produce where price is greater than marginal cost.