Question

True/False. Explain: Since the long-run equilibrium profit in a monopolistically competitive industry is zero, the industry is efficient.

Answer 1

In the long run the price charged by the monopolistically competitive firm may be equal to the average total cost of production but the price is not equal to the minimum of average total cost of production like that in perfectly competitive market. The price charged by the monopolistically competitive firm is more than the perfectly competitive firm and output is lower. The perfectly competitive firm is efficient because in the long run it produces at the minimum of average total cost of production. The statement is False that the industry is efficient in the long run. Yes the firms in the industry earns zero economic profits in the long run but not at the minimum of average cost of production.