Question #67683

Assume that in long-run equilibrium the minimum point of the LRAC curve for a table manufacturer’s tables in $200 per table. Under conditions of monopolistic competition, will the long-run price of a table be above $200, equal to $200 or less than $200. Explain your answer

Expert's answer

If in long-run equilibrium the minimum point of the LRAC curve for a table manufacturer’s tables in $200 per table, then under conditions of monopolistic competition the long-run price of a table will be equal to $200, because all firms in the long-run under monopolistic competition receive normal (zero) profit at price P = LATC and quantity at MR = MC.

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