Question

A firm under monopolistic competition in long run equilibrium is ____________.

• A. at the minimum point of the long run AC curve
• B. at the falling segment of the long run AC curve
• C. at the rising segment of the long run AC curve
• D. none of the above

Answer 1

The correct option is A at the minimum point of the long run AC curve

Long run equilibrium of a firm in monopolistic competition is achieved when marginal cost is equal to the marginal revenue which means that the change in total revenue if an additional unit of output is sold is equal to the change in total cost if an additional unit of the same output is produced and after this point the marginal must be rising and greater than marginal revenue so MC curve should cut MR curve from below. This is also the minimum point of long run Average Cost curve which means that the firm is earning only normal profits at the long run under monopolistic competition.