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

• A. It faces a perfectly elastic demand curve.
• B. It is a price taker.
• C. It earns zero economic profit.
• D. It produces at the minimum point of its average total cost curve.

Answer: (C)

Verified step by step guidance

1. Understand the characteristics of a monopolistically competitive firm: it has many sellers, product differentiation, and free entry and exit in the long run.
2. Recall that in the long-run equilibrium, free entry and exit drive economic profits to zero, meaning the firm earns zero economic profit.
3. Recognize that the demand curve faced by a monopolistically competitive firm is downward sloping, not perfectly elastic, because of product differentiation.
4. Note that the firm is not a price taker; it has some control over price due to product differentiation.
5. Understand that the firm does not produce at the minimum point of its average total cost curve in the long run because it produces where marginal cost equals marginal revenue, which typically occurs at a higher average cost than the minimum.