Which statement is TRUE?
A)For choosing the profit-maximizing quantity,the short-run decision-making process of a firm in perfect competition is the same as that of a firm in monopolistic competition since they produce so that P MC.
B)In the long run in perfect competition,economic profits equal zero,and in monopolistic competition in the long run,economic profits are very large.
C)In perfect competition,P = MC,and in monopolistic competition,MR = MC,but P MC and there is excess capacity.
D)In both perfect competition and monopolistic competition,P equals minimum average total cost in the long run.

Question

Which statement is TRUE?
A)For choosing the profit-maximizing quantity,the short-run decision-making process of a firm in perfect competition is the same as that of a firm in monopolistic competition since they produce so that P > MC.
B)In the long run in perfect competition,economic profits equal zero,and in monopolistic competition in the long run,economic profits are very large.
C)In perfect competition,P = MC,and in monopolistic competition,MR = MC,but P > MC and there is excess capacity.
D)In both perfect competition and monopolistic competition,P equals minimum average total cost in the long run.

Quizplus · Accepted Answer

In perfect competition, firms produce where P = MC, while in monopolistic competition, firms produce where MR = MC, but P > MC. Additionally, firms in monopolistic competition have excess capacity, meaning they could produce more at a lower cost, but choose not to in order to maintain their perceived differentiation. In the long run, economic profits are driven down to zero in perfect competition, while in monopolistic competition, there may be high economic profits due to the perceived differentiation and market power. Neither perfect competition nor monopolistic competition necessarily produce at minimum ATC in the long run.

Which Statement Is TRUE