Q. Which of the following is true of a monopolistically competitive firm in long-run equilibrium? a. The firm produces the allocatively efficient level of output. b. The firm produces an output level that minimizes average total cost. c. The firm produces in the inelastic range of its demand curve. d. The firm is allocatively inefficient, because it produces an output level at which price is greater than marginal cost.

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Business

Elliana Horn

21 April, 08:54

Q. Which of the following is true of a monopolistically competitive firm in long-run equilibrium? a. The firm produces the allocatively efficient level of output. b. The firm produces an output level that minimizes average total cost. c. The firm produces in the inelastic range of its demand curve. d. The firm is allocatively inefficient, because it produces an output level at which price is greater than marginal cost.

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Fido · Answer 1

D) The firm is allocatively inefficient, because it produces an output level at which price is greater than marginal cost.

Explanation:

Monopolistic competition refers to a market where several suppliers exist, each supplier will offer a similar but differentiated products than its competitors. For example, restaurants are monopolistic competitors. In monopolistic competition markets there are none or very few entry or exit barriers.

Monopolistic competition firms are allocatively inefficient because their price is higher than their marginal costs because they are not able to produce at minimum average total cost.