In long-run monopolistic competition, firms typically operate with:
Correct answer: A. Excess capacity and zero economic profit
- A. Excess capacity and zero economic profit
- B. Allocative efficiency and maximum capacity
- C. Permanent losses and rising demand
- D. A horizontal market demand curve
Explanation
Free entry and exit remove economic profit in long-run monopolistic competition. Because each firm faces a downward-sloping demand curve, its output is below the level that minimizes average total cost, creating excess capacity.
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About Microeconomics
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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