Question 14 (1 point)Which of the following is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run equilibrium? aMarginal cost is greater than marginal revenue. bPrice is greater than marginal cost. cPrice is equal to average total cost. dPrice is equal to marginal cost.
Question
Question 14 (1 point)Which of the following is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run equilibrium? aMarginal cost is greater than marginal revenue. bPrice is greater than marginal cost. cPrice is equal to average total cost. dPrice is equal to marginal cost.
Solution
The correct answer is c. Price is equal to average total cost.
In the long-run equilibrium, both a monopolistically competitive firm and a perfectly competitive firm will produce at a point where price is equal to average total cost. This is because, in the long run, firms will enter or exit the market until they are making zero economic profit. When a firm is making zero economic profit, it means that its total revenue is covering all its costs, including a normal profit. This occurs at the point where price equals average total cost.
a. Marginal cost is greater than marginal revenue - This is not necessarily true for either type of firm. Firms maximize profit by producing where marginal cost equals marginal revenue, not where marginal cost is greater than marginal revenue.
b. Price is greater than marginal cost - This is typically true for monopolistically competitive firms because they have some market power, but it is not true for perfectly competitive firms, which are price takers.
d. Price is equal to marginal cost - This is true for perfectly competitive firms, but not for monopolistically competitive firms. Monopolistically competitive firms have some market power, which allows them to set a price that is higher than marginal cost.
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