Consider the Following Statement: "A Monopolistically Competitive Market in Which

question 62

Multiple Choice

Consider the following statement: "A monopolistically competitive market in which there are no entry barriers will have the identical long- run equilibrium as if the market were perfectly competitive." Is this statement correct?

• A)No,because firms in the monopolistically competitive market do not produce at an output level where MC = MR,as in perfect competition,which leads to a different price and output in long- run equilibrium.
• B)No,because firms in the monopolistically competitive market will not reach their minimum efficient scale as they would in perfect competition - the result is higher prices and lower output.
• C)Yes,in the absence of entry barriers,firms in the monopolistically competitive market will expand until they are producing at the minimum of their LRAC curves,just as in perfect competition.
• D)Yes,in the absence of entry barriers,new firms enter the industry until industry price and output are identical to perfect competition.
• E)No,firms in the monopolistically competitive market earn economic profits in the long run because they are facing a downward- sloping demand curve,whereas in perfect competition they earn zero profits.