In long-run equilibrium, a monopolistically competitive firm achieves productive efficiency because free entry and exit eliminate economic profits, driving price down to equal average total cost.
Answer: Answer
Answer
The statement is False. Long-run equilibrium in monopolistic competition yields zero economic profit (), but because the firm's demand curve slopes downward, production occurs to the left of the minimum ATC point, creating excess capacity and failing to achieve productive efficiency.
The statement is false because product differentiation gives monopolistically competitive firms market power, resulting in a downward-sloping demand curve. Although free entry forces long-run economic profits to zero (), tangency occurs on the falling segment of the average total cost curve, leading to excess capacity rather than productive efficiency.
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Key Concept
Excess Capacity and Productive Efficiency in Monopolistic Competition