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

• A. It produces at the minimum point of its average total cost curve.
• B. It is a price taker.
• C. It earns zero economic profit.
• D. It faces a perfectly elastic demand 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 unlike perfect competition, a monopolistically competitive firm does not produce at the minimum point of its average total cost (ATC) curve because it has some market power and faces a downward-sloping demand curve.
4. Note that the firm is not a price taker; it has some control over its price due to product differentiation, so it faces a downward-sloping demand curve, not a perfectly elastic one.
5. Conclude that the correct statement is that the firm earns zero economic profit in the long run, reflecting the balance between market power and free entry/exit.