Question 1

Which statement is true?

Accepted Answer

The correct statement is D because it accurately reflects the dynamics of monopolistic competition, where the business stealing effect (firms entering the market steal business from existing firms, potentially leading to too much entry) and the product variety effect (consumers benefit from a greater variety of products, potentially leading to too little entry) can both influence the market, and the overall impact on entry depends on which effect is stronger.

Question 2

In the short run in a monopolistically competitive industry:

Accepted Answer

In the short run in a monopolistically competitive industry, a firm sets its output where marginal revenue (MR) equals marginal cost (MC), and the price (P) can be above, equal to, or below average total cost (ATC), allowing for positive, negative, or zero economic profits. This does not necessarily lead to immediate exit or entry into the industry.

Question 3

In the short run in a monopolistically competitive industry:

Accepted Answer

A) Firms can earn positive economic profits. In the short run, firms in a monopolistically competitive market may have differentiated products and some degree of market power, allowing them to set prices above their average total cost and earn positive economic profits.
B) Firms can earn negative economic profits. If a firm's average total cost exceeds the price it can charge due to high fixed costs or inefficient production, it may incur losses or negative economic profits in the short run.
C) Firms can earn zero economic profits. In some cases, firms may break even in the short run, with prices equal to average total costs, resulting in zero economic profits.
D) Firms are profit maximizers, setting MR = MC if they produce a positive level of output. Monopolistically competitive firms, like other firms, aim to maximize profits. They do this by producing the quantity of output where marginal revenue (MR) equals marginal cost (MC), provided they are producing a positive level of output.
E) All of the above statements are true. Since all the statements A through D are correct descriptions of possible scenarios in the short run for a monopolistically competitive industry, statement E is also true.
Therefore, the full answer for the input question is:
E) All of the above statements are true.

Question 4

In the short run for a firm in a monopolistically competitive industry:

Accepted Answer

In the short run for a firm in a monopolistically competitive industry, the price (P) is typically greater than marginal cost (MC), and marginal revenue (MR) equals MC, not P, leading to a deadweight loss (DWL) because the firm does not produce at the point where P = MC, which would be allocatively efficient.

Question 5

In a monopolistically competitive industry, which statement is true?

Accepted Answer

The answer of In a monopolistically competitive industry, which statement...

Quiz 13: Monopolistic Competition

Which statement is true?

In the short run in a monopolistically competitive industry:

In the short run in a monopolistically competitive industry:

In the short run for a firm in a monopolistically competitive industry:

In a monopolistically competitive industry, which statement is true?