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    Question

    In monopolistic competition, long-run equilibrium occurs

    where price is:
    A Equal to marginal cost and average cost. Correct Answer Incorrect Answer
    B Above marginal cost but equal to average cost. Correct Answer Incorrect Answer
    C Equal to marginal cost but above average cost. Correct Answer Incorrect Answer
    D Above both marginal and average cost. Correct Answer Incorrect Answer
    E Below average cost. Correct Answer Incorrect Answer

    Solution

    Firms have some market power (P > MC due to product differentiation) but free entry/exit drives economic profit to zero, so P = ATC.

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