CFA Practice Question

There are 539 practice questions for this study session.

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
You need to log in first to add your comment.