Section: Principles of Microeconomics

8) In the long run, a monopolistic competitor

1. makes a profit.
2. produces at the lowest point on its AC curve
3. breaks even.
4. produces where P equals MC.
5. incurs a loss.

The monopolistic competitor engages in nonprofit competition. Nonprofit competition includes advertising and product differentiation. This nonprofit competition aids in increasing the firm's market share. The increase in the market share shifts its demand curve to the right, while at the same time its cost curve increases and shifts upward. The two effects cause the firm to break even in the long run.