Discussion
The long-run equilibrium outcomes in monopolistic competition and perfect competition are similar, because in both market structures :
Answer: C
The outcomes are similar because in both firms will only earn a normal profit.
In both market structures entry and exit are free. If firms earn supernormal profits, new firms enter until the profits are competed away; if they make losses, firms leave. So in the long run price equals average cost and every firm earns only normal profit.
The structures differ in the other respects. Under monopolistic competition the demand curve slopes downward, so the firm produces below the output of minimum average cost, with excess capacity; output is not the efficient level, and economies of scale are not fully realised.
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