Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 16 - Part V - Monopolistic Competition - Problems and Applications: 4


A. Both B. Both C. Monopolistically competitive D. Monopoly E. Both F. Neither

Work Step by Step

A. For both types of firms, as they raise the price of their product, the quantity demanded will decrease. B. Both types of firms must lower the price of all units of a product to sell additional units, so the price is always greater than the marginal revenue C. Monopolies exist because their markets have high barriers of entry; if new firms could enter their market easily, then they would no longer have all/the majority of the market. D. Monopolistically competitive firms earn 0 profit in the long run because they have no barriers of entry. The number of sellers in the market changes such that they can make no economic profit in the long run. E. Both types of firms maximize profit by producing at the quantity where marginal revenue and marginal cost meet. F. To produce at the socially efficient quantity, a firm must produce where demand and marginal cost meet. For both monopolies and monopolistically competitive firms, demand = price, and price > marginal revenue, and they produce where marginal revenue = marginal cost, so they do not produce where marginal cost = demand.
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