Which of the following statements is not true regarding a monopolistically competitive firm in the short run?
A)Advertising may enable the firm to charge a higher price than that charged by rival firms.
B)The firm may be able to earn a normal profit, earn an economic profit, or incur an economic loss.
C)Entry into the market is fairly easy.
D)Profits will be maximized at the point at which price equals marginal cost.
E)It faces a negatively-sloped demand curve.

Question

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm may not always maximize profits where price equals marginal cost. Instead, it may choose to produce at a level below the point of marginal cost equals price, in order to enjoy some market power and charge a higher price. However, in the long run, if the firm continues to make economic profit, new firms will enter the market and competition will increase, driving down the price and reducing economic profit to zero. At this point, the firm will produce where price equals marginal cost.

Which of the Following Statements Is Not True Regarding a Monopolistically