Which of the following describes a monopoly, but does NOT describe perfect competition?
A) A profit-maximizing firm will shut down if price falls below the average variable cost.
B) Total revenue is the product of price times the quantity sold.
C) Firms can potentially earn economic profits in the short run.
D) Firms can potentially earn economic profits in the long run.

Question

Quizplus · Accepted Answer

In perfect competition, firms cannot earn economic profits in the long run as entry of new firms drives down profits to zero. However, a monopoly can earn economic profits in the long run as it has control over the market and can set prices above marginal cost. A, B, and C describe features of both monopoly and perfect competition.

Which of the Following Describes a Monopoly, but Does NOT