Which of the following is true?
A)When choosing the profit-maximizing quantity, the short-run decision-making process for a firm in perfect competition and a firm in monopolistic competition is the same, since they produce the quantity where P MC.
B)In the long run in perfect competition, economic profits = 0, 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 of the following is true?
A)When choosing the profit-maximizing quantity, the short-run decision-making process for a firm in perfect competition and a firm in monopolistic competition is the same, since they produce the quantity where P > MC.
B)In the long run in perfect competition, economic profits = 0, 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, the profit-maximizing quantity is where P = MC, while in monopolistic competition, it is where MR = MC. However, in monopolistic competition, P > MC due to product differentiation, and there is excess capacity as firms produce at a level below minimum efficient scale. Economic profits are also not very large in the long run in monopolistic competition as new firms can enter and compete, driving profits down. Therefore, option C is the only true statement.

Which of the Following Is True