An empirical study determines that price exceeds marginal cost at the levels of output of firms in long-run equilibrium in the widget industry.The widget industry may therefore
A)be monopolistically competitive.
B)have firms whose goal is sales maximization.
C)have firms that act as price leaders.
D)All of the responses are correct.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms have some power to set prices above marginal cost due to product differentiation. Firms aiming for sales maximization might also set prices above marginal cost to increase revenue, even if it's not maximizing profit per se. Price leadership, where some firms set prices that others follow, can also lead to prices being set above marginal cost. Therefore, all the given options are plausible explanations for the observed phenomenon in the widget industry.

An Empirical Study Determines That Price Exceeds Marginal Cost at the Levels