Question

In the long run, a profit-maximizing monopolistically competitive firm sets it price Multiple Choice above marginal cost. below marginal cost. equal to marginal revenue equal to marginal cost.

Answer 1

Since a monopolistic firm is that form of market in which there is large number of buyers and sellers and firm sells differentiated product based on quality, size, shape etc, therefore product is not homogeneous. Since firm is price maker but firm does not compete on the price but they compete in the market based on size, quantity quality etc.

Since the profit-maximization condition are;

MR=MC

Corresponding to this quantity, the price is determined and price is always greater than long-run MC.

Hence it can be said that in the long-run in the monopolistic competition price is greater than MC.

Hence option first is the correct answer.

first; above MC.