Which of the following statements is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run profit-maximizing equilibrium?
A) Economic profits equal zero, and price equals marginal cost.
B) Economic profits equal zero, and price equals marginal revenue.
C) Marginal revenue equals marginal cost and profits are positive.
D) Economic profits equal zero, and marginal revenue equals marginal cost.
E) Economic profits equal zero, and price exceeds marginal cost.

Monopolistic competition can be defined as an imperfect competition where many producers or organizations sell differentiated products that are not perfect substitutes. Some examples of firms or organizations engaging in a monopolistic competition are restaurants, shoes, clothing lines etc.

Generally, a monopolistic competitive market is characterized by the presence of large numbers of firm (producers) and a very low entry barrier.

Hence, in a monopolistic competition, firms have a degree of control over price, make independent decisions and can freely enter or exit the market in the long-run. Therefore, these firms combine elements of both monopoly and competition.

In a perfect competition, there are many buyers and sellers of homogeneous products, and there is free entry and exit in the market.

This simply means that, in a perfectly competitive market, there are many buyers and sellers (price takers) of homogeneous products (standardized products with substitute) and the market is free (practically open) to all individuals or business entities that are willing to trade all their goods and services.

Hence, a perfectly competitive market is characterized by the following features;

1. Perfect information.

2. No barriers, it is typically free.

3. Equilibrium price and quantity.

4. Many buyers and sellers.

5. Homogeneous products.

Some examples of a perfectly competitive market are the Agricultural sector, e-commerce and the foreign exchange market.

In a perfectly competitive market in long-run equilibrium, a long-run equilibrium avails firms the opportunity to adjust all inputs and all fixed costs are maximized. Also, it's characterized by free entry and exit, as such there isn't a fixed number of firms. This simply means that, since the number of firms in a long-run equilibrium can change, a firm must exit the market as a result of losses i.e when the firm is unable to cover its fixed costs in the long-run while new firms are allowed entry into the market when it anticipates potential profits or gains.

However, the firms always strive to maximize profits by increasing their level of output, such that P = MC. Also, the firms wouldn't be willing to leave or enter into the market because they are not making any profit, such that P=AC.

In a nutshell, in the long run equilibrium P=MR=MC and P=AC.

Where, P represents the price.

Therefore, the true statement for both a monopolistically competitive firm and a perfectly competitive firm in long-run profit-maximizing equilibrium is that, economic profits equal zero, and marginal revenue equals marginal cost.

Martebi Martebi · Answer 2 · 2022-01-24T13:31:21+01:00

There are different kinds of firms. The statements that is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run profit-maximizing equilibrium is that;

Economic profits equal zero, and marginal revenue equals marginal cost.

In a perfect and monopolistic competition, there is freedom of entry and exit usually in the long run.

A true statement in long-run equilibrium for a firm in a monopolistic competitive industry is that the demand curve is tangent to average cost curve.

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