Economics • Economic BasicsHard
Which of the following describes the condition for long-run equilibrium in a monopolistically competitive market?
A. Price equals marginal cost, and economic profit is zero.
B. Price equals average total cost, and economic profit is zero, with price exceeding marginal cost.✓ Correct Answer
C. Price equals minimum average total cost, and firms produce at efficient scale.
D. Firms earn positive economic profits due to product differentiation.
💡 Solution & Explanation
In a monopolistically competitive market, free entry and exit ensure that economic profits are driven to zero in the long run, setting price equal to average total cost while price exceeds marginal cost due to product differentiation. Unlike perfect competition, firms operate on the downward-sloping portion of their average cost curves. Microeconomics concepts regarding market structures are staple topics in economics papers.
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