- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 7. Monopolistic Competition
CFA Practice Question
Which of the following is true for monopolistically competitive firms in long-run equilibrium?
A. Price exceeds average total cost.
B. Price exceeds marginal cost.
C. Price equals the minimum average total cost.
Explanation: Since the monopolistic competitor operates where P = ATC in the long run and MC< ATC for the firm, then it is true that P > MC.
User Contributed Comments 4
| User | Comment |
|---|---|
| dimos | In long-run, price equals ATC (zero economic profit) but not the minimum level |
| bahodir | why not? |
| gaetmichel | because the tangent of D curve to ATC is not at lowest possible ATC. Equilibrium output is lower than minimum ATC output (and the difference in output is excess capacity) |
| bidisha | Click on Los and stare at the first graph, and getmichel will start making sense |