Which of the following is a characteristic of the long-run equilibrium under monopolistic competition?
A. Firms earn supernormal profits
B. Firms earn only normal profits and operate with excess capacity
C. Firms produce at the lowest point of the LAC curve
D. Price equals minimum average cost
Answer: Option B
Solution (By JKSSB Mock Tests)
In the long run, free entry eliminates supernormal profits under monopolistic competition. Firms operate on the falling portion of their LAC curve, implying excess capacity.
Explanation:
Short-term balance of payments support is primarily the function of the IMF. The World Bank focuses on long-term development finance and poverty reduction.
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