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In competitive markets, price is equal to marginal cost in the long run In monopolistic competition, why is price greater than marginal cost in the long run Price is driven to marginal cost in both

In competitive markets, price is equal to marginal cost in the long run. In monopolistic competition, why is price greater than marginal cost in the long run? Price is driven to marginal cost in both competitive markets and markets that are monopolistically competitive. Both markets can charge more than marginal cost in the long run because products are differentiated in both markets. Products are identical in perfectly competitive markets, so a firm must charge less than marginal cost in order to differentiate itself. This is not true in monopolistically competitive markets where firms can charge more than marginal cost. The demand curves for the two types of firms are different. Monopolistically competitive firms have market power and a downward sloping demand curve, so they set a price higher than marginal cost.

Jun 02 2020 View more View Less

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