Question

In the long run equilibrium for a monopolistically competitive firm,

Group of answer choices

P = MC

P = ATC, and the firm will be at the minimum of the ATC curve

P = ATC, but the firm will not be at the minimum of the ATC curve

P < MC

Answer 1

P = ATC, but the firm will not be at the minimum of the ATC curve

Explanation :

Monopolistically competitive firm faces downward sloping demand curve and marginal revenue curve lies below demand curve. In long run, monopolistically competitive firm earns zero economic profit and thus it produce where MR equals MC and charge price on the demand curve above where MR equals MC and price =ATC. Monopolistically competitive firm are not efficient so it not produce at minimum ATC.

So, in long run, monopolistically competitive firm produce where,

Price =ATC that is not minimum >MR =MC.