To choose: the option that states the long-run outcome of a monopolistically competitive industry.
Answer to Problem 5MCQ
The correct option is E i.e., a tradeoff between higher average total cost and more product diversity.
Explanation of Solution
There are no fixed factors of production in the long run in
The amount of goods that a firm will produce in monopolistic competition is determined by the point where LRMC = MR i.e. the long-run marginal cost curve overlaps/ intersects the marginal revenue (MR). The price will be determined from the point where the Q i.e. quantity produced falls on the AR curve (average revenue curve) The consequence is that the firm will break even in the long-term
So, the long-run outcome in a monopolistically competitive industry results in a tradeoff between higher average total cost and more product diversity.
Chapter 67 Solutions
Krugman's Economics For The Ap® Course
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