Question

which of the following characteristics is true for both perfectly competitive and monopolistically competitive firms in the long run?
a. price equals minimum average total cost.

b. price equals marginal cost.

c. price elasticity of demand is infinite.

d. there are zero economic profits.

Explanation:

• For option A: In monopolistically competitive firms, the firm does not produce at the minimum of average total cost (they have excess capacity), while perfectly competitive firms do. So A is incorrect.
• For option B: In monopolistically competitive firms, price is greater than marginal cost (due to market power from product differentiation), while in perfectly competitive firms price equals marginal cost. So B is incorrect.
• For option C: Perfectly competitive firms have a perfectly elastic (infinite) demand curve, but monopolistically competitive firms have a downward - sloping demand curve with finite price elasticity of demand. So C is incorrect.
• For option D: In the long run, both perfectly competitive and monopolistically competitive firms earn zero economic profits. In perfect competition, free entry and exit drive economic profits to zero. In monopolistic competition, new firms enter the market (attracted by positive economic profits in the short run) until economic profits are zero (and firms exit if there are negative economic profits in the short run until profits are zero).

Answer:

D. There are zero economic profits.