Which of the following statements about a monopolistically competitive firm in the short run is true?
A)Profits will be maximized at the point at which price equals marginal cost and hence there is no deadweight loss.
B)The firm may be able to earn a super normal profit in the short run and the long run.
C)Entry into the market is difficult.
D)Advertising may enable a firm to charge a higher price than that charged by rival firms.
E)It faces a perfectly elastic demand curve

Question

Quizplus · Accepted Answer

In monopolistic competition, firms differentiate their products through branding and advertising, which can lead to a perceived difference in quality or value. This perceived difference allows some firms to charge a higher price than rivals, enabling them to earn a higher profit in the short run. Therefore, statement D is true. The other statements are false: A is false because monopolistically competitive firms do not produce at the point where price equals marginal cost, B is false because in the long run, these firms will only earn normal profit, C is false because there is no barrier to entry in monopolistic competition, and E is false because the demand curve is downward sloping, but not perfectly elastic.

Which of the Following Statements About a Monopolistically Competitive Firm