Final answer:
A monopolistically competitive firm produces less and charges a higher price in the long run compared to a perfectly competitive firm, leading to allocative inefficiency and resulting in zero economic profits due to market entry and exit responses.
Step-by-step explanation:
When comparing the long-run outcomes of a monopolistically competitive firm to that of a perfectly competitive firm, one would conclude that the monopolistically competitive firm produces less. In perfectly competitive markets, firms produce at a quantity where price equals marginal cost, which allows for allocative efficiency, meaning the social benefits equal the marginal costs.
However, in monopolistic competition, firms maximize profit by setting MR = MC, leading to a higher price than marginal revenue due to a downward sloping demand curve. As a result, monopolistically competitive firms charge a higher price and produce a lower quantity compared to perfectly competitive firms, generating allocative inefficiency. Long-run equilibrium in monopolistically competitive markets leads to zero economic profits due to the entry and exit of firms responding to profit opportunities.