Which of these graphs correctly illustrates a monopolistic competition in long-run equilibrium?

Cloase 1 artawes:
(3)
(c)
(D)
(2)

Question

Which of these graphs correctly illustrates a monopolistic competition in long-run equilibrium?

Cloase 1 artawes:
(3)
(c)
(D)
(2)

Accepted Answer

∻Solution∻ ‖ a ⋮ Characteristics of Monopolistic Competition in the Long Run: In the long run, firms in monopolistic competition will produce where $P = ATC$ and $MR = MC$. This means that firms will earn zero economic profit, similar to perfect competition. However, unlike perfect competition, firms in monopolistic competition will not produce at the minimum point of the ATC curve, leading to excess capacity. ‖ ‖ b ⋮ Allocative Inefficiency: Allocative inefficiency occurs when the price is not equal to the marginal cost ($P eq MC$). In the long run, firms in monopolistic competition are allocatively inefficient because $P > MC$. This is in contrast to perfect competition, where $P = MC$ in the long run, leading to allocative efficiency. ‖ ‖ c ⋮ Identifying the Correct Graph: The correct graph for monopolistic competition in long-run equilibrium should show the demand curve (D = MR) tangent to the ATC curve at the quantity where $MR = MC$. This indicates zero economic profit and excess capacity. Based on the provided descriptions, Graph A is the correct illustration. ‖ ∻Answer∻ ⚹ Graph A correctly illustrates monopolistic competition in long-run equilibrium. ⚹ ∻Key Concept∻ ⚹ Monopolistic competition in the long run results in zero economic profit and allocative inefficiency. ⚹ ∻Explanation∻ ⚹ In the long run, firms in monopolistic competition produce where $P = ATC$ and $MR = MC$, leading to zero economic profit. However, they do not produce at the minimum point of the ATC curve, resulting in excess capacity and allocative inefficiency ($P > MC$). Graph A correctly depicts these characteristics. ⚹◊How does monopolistic competition in long-run equilibrium affect the pricing and output decisions of firms?⍭ Generate me a similar question◊

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