Question

Which of the following is most accurate? perfectly competitive firms are price takers. monopolistically competitive firms offer a differnetiated product. In a duopoly, only two firms are competing Monopolies use the rule MR=MC to maximize profit. All the above.

Answer 1

Question :

Answer : The correct answer is All of the above.

In perfect competition, there are large number of buyers and sellers. The product is identical and there are no costs other than production. Consumers have perfect knowledge Each single firm produces a very small amount and thus affect a very low demand and is not in a position to affect the price and earn zero economic profit. Also, they have no barriers to entry and exit. Therefore, firms are price takers in perfect competition.

In monopolistic competition there are large number of sellers but less than perfect competition. The firms earn positive economic profits due to differentiated products. There are costs other than production costs like advertising which make their products differentiated.

Duopoly is called duopoly because there are only 2 firms serving the market.

Monopolist produces at MR = MC, because at only this level profits are maximized.