In the long run, international trade allows a monopolistically
Competitive firm an opportunity:
A)to produce more output and earn monopoly profits.
B)to produce less output and earn monopoly profits.
C)to produce more output and reduce its average costs.
D)to produce less output and increase its average costs.

Question

Quizplus · Accepted Answer

International trade allows a monopolistically competitive firm to increase its production and reduce its average costs because it can specialize in producing the goods it can produce most efficiently and import the goods it cannot produce efficiently at lower costs from other countries. This specialization leads to economies of scale, which reduce the per-unit costs of production. As a result, the firm can expand its output and earn higher profits without facing as much competition from domestic rivals.

In the Long Run, International Trade Allows a Monopolistically