In the long run the monopolistic competitor

A) charges the same price but produces a greater output than the perfect competitor.
B) charges a higher price but produces a smaller output than the perfect competitor.
C) charges a higher price and produces a higher output than the perfect competitor.
D) charges a lower price and produces a lower output than the perfect competitor.
E) charges a lower price but produces a higher output than the perfect competitor.

Question

Donterris Rogers · Accepted Answer

Final Answer : B, Explanation :  Monopolistic competition involves firms selling differentiated products, giving them some degree of market power to set their own prices. In the long run, however, this market power is constrained by entry and exit of firms. As firms earn profits, new firms will be attracted to the market, increasing competition and driving down profits. In the long run, a monopolistic competitor will charge a higher price than the perfectly competitive firm as they have some market power, but will produce a smaller output as they face competition from other firms. This means that choice B, charges a higher price but produces a smaller output than the perfect competitor, is the best answer.

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