Question

Which of the following is a difference between a monopolistically competitive market and a perfectly competitive market in the long run?

A. Firms in a monopolistically competitive market earn zero economic profits in the long run, while firms in a perfectly competitive market incur losses in the long run.
B. Firms in a monopolistically competitive market charge a price lower than marginal cost in the long run, while firms in a perfectly competitive market charge a price equal to marginal cost in the long run.
C. Firms in a monopolistically competitive market charge a price higher than marginal cost in the long run, while firms in a perfectly competitive market charge a price equal to marginal cost in the long run.
D. Firms in a monopolistically competitive market earn zero economic profits in the long run, while firms in a perfectly competitive market earn positive economic profits in the long run.

Answer 1

In the long run, firms in a monopolistically competitive market earn zero economic profits, while firms in a perfectly competitive market also earn zero economic profits. However, there is a difference in how firms in these two markets set their prices.

Step-by-step explanation:

In the long run, firms in a monopolistically competitive market earn zero economic profits, while firms in a perfectly competitive market also earn zero economic profits in the long run. However, there is a difference in how firms in these two markets set their prices.

In a monopolistically competitive market, firms charge a price higher than marginal cost in the long run. This is because they have some degree of market power and can differentiate their products, allowing them to charge a higher price.

On the other hand, in a perfectly competitive market, firms charge a price equal to marginal cost in the long run. This is because there is no market power, and all firms sell identical products, resulting in a uniform market price.