Economics Monopolistic Competition Questions
In the long-run equilibrium of a firm in monopolistic competition, the firm operates at a point where it maximizes its profits. This occurs when the firm produces at the level where marginal revenue (MR) equals marginal cost (MC). However, unlike perfect competition, the firm in monopolistic competition does not produce at the minimum average total cost (ATC) point.
In the long run, new firms can enter the market due to low barriers to entry. As a result, the demand curve faced by each firm becomes more elastic, reducing their market power. This leads to a decrease in the firm's market share and profits over time.
In the long-run equilibrium, the firm earns normal profits, where its average total cost (ATC) equals its average revenue (AR). This means that the firm covers all its costs, including opportunity costs, but does not earn any economic profit.
Additionally, in monopolistic competition, firms engage in product differentiation to create a unique brand or product. This allows them to have some control over the price they charge, but they still face competition from other firms offering similar products.
Overall, the long-run equilibrium of a firm in monopolistic competition is characterized by normal profits, product differentiation, and the potential for new firms to enter the market.