Suppose the firm or firms in the market for Good A face a downward-sloping demand curve, maximize profit by producing the quantity at which marginal revenue equals marginal cost, set the price higher than the marginal cost, and break even in long run equilibrium. Which one of the following market structures most likely exists for Good A?

Question

Suppose the firm or firms in the market for Good A face a downward-sloping demand curve, maximize profit by producing the quantity at which marginal revenue equals marginal cost, set the price higher than the marginal cost, and break even in long run equilibrium. Which one of the following market structures  most likely exists for Good A?

Quizplus · Accepted Answer

This scenario describes the behavior of firms in a monopolistic competition market structure, where firms have some market power to set prices above marginal cost, but face competition from other firms selling similar but not identical products. In the long run, firms will break even due to the entry and exit of firms in the market. Perfect competition and monopoly do not allow firms to set prices above marginal cost, and oligopoly involves interdependence among a small number of firms, so they are unlikely to produce the described behavior.

Suppose the Firm or Firms in the Market for Good