Which of the following is true of monopolistically competitive firms in long-run equilibrium?

• A. They earn zero economic profit.
• B. They produce at the minimum point of their average total cost curve.
• C. They are price takers.
• D. They face perfectly elastic demand.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the characteristics of monopolistically competitive firms, which have many sellers, differentiated products, and free entry and exit in the long run.
2. Step 2: Recall that in the long-run equilibrium, free entry and exit drive economic profits to zero, meaning firms earn zero economic profit.
3. Step 3: Recognize that unlike perfectly competitive firms, monopolistically competitive firms do not produce at the minimum point of their average total cost (ATC) curve because they have some market power and face a downward-sloping demand curve.
4. Step 4: Note that monopolistically competitive firms are not price takers; they have some control over the price due to product differentiation.
5. Step 5: Understand that the demand curve faced by monopolistically competitive firms is downward sloping and not perfectly elastic, which contrasts with perfect competition.