Question

In: Economics

For each of the following characteristics, say whether it describes a monopoly firm, a monopolistically competitive...

For each of the following characteristics, say whether it describes a monopoly firm, a monopolistically competitive firm, both, or neither.

a. faces a downward-sloping demand curve

b. has marginal revenue less than price

c. faces the entry of new firms selling similar products

d. earns economic profit in the long run

e. equates marginal revenue and marginal cost

f. produces the socially efficient quantity of output

Solutions

Expert Solution

a. faces a downward-sloping demand curve - Monopoly and monopolistic competititon.Only in perfect competition we have a horizontal demand curve.

b. has marginal revenue less than price- Monopoly and monopolistic competitive firm.The price line in these two firm is the AR curve which is downard sloping,So the marginal revenue curve will be below than the AR curve or price line.

c. faces the entry of new firms selling similar products- Perfect competition and monopolistic competition.Whenever there is super normal profit there will be entry of firm in these two markets.

d. earns economic profit in the long run- Monopoly.Monopoly can only earn economic profit in long run. In perfect competition and monopolistic competition the profits of the firms are wiped out by entry of new firms.

e. equates marginal revenue and marginal cost- Monopoly and monopolistic competiitve firm in order to maximize thier profit equate Marginal revenue with the marginal cost.

f. produces the socially efficient quantity of output-Perfect competition.There is production efficiency only in the case of perfect competition.

Rahul Sunny answered 2 years ago
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