. In competitive markets, price is equal to marginal cost in the long run. Explain why this statement is not true for monopolistic competition.

A Monopolistic Market may consist of many firms providing the same goods and services but these goods and services will be differentiated from one another in such a way that the goods will be perceived differently.

This has the effect of giving firms in such a market a downward sloping demand curve. The firm will maximise output at the point where Marginal Revenue equals marginal cost. This point will be lower than the demand curve so the firm will charge a price that is higher than the marginal cost at that point.

Refer to graph attached and notice how the price P is above the Long run marginal cost curve.

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