In long-run equilibrium under monopolistic competition, firms typically earn:
Correct answer: B. Zero economic profit with excess capacity
- A. Positive economic profit permanently
- B. Zero economic profit with excess capacity
- C. Zero accounting revenue with no output
- D. A guaranteed loss below average cost
Explanation
Entry and exit tend to eliminate economic profit in the long run. Product differentiation leaves each firm facing a downward-sloping demand curve, so it usually produces below the output that minimizes average total cost, creating excess capacity.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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