Question

When a firm's demand curve is tangent to its average total cost curve, economic profits are zero and the firm will exit the industry in the long run since firms are unwilling to operate at zero economic profit.

true or false

If the gain from a product-variety externality is less than the loss from a business-stealing externality, then there are likely to be too many firms in a monopolistic competitive market.

true or false

Although the monopolistically competitive firm maximizes profits at the output level where marginal revenue equals marginal cost, the firm’s price exceeds marginal cost

true or false

If firms in a monopolistic competitive market are earning economic profits in the short run, then, in the long run, new firms will enter and existing firms will lose customers to the new entrants.

true or false

Answer 1

a) False, when it is tangent then the firm is only breaking even that is no loss or no profit hence they will remain in the industry and continue to produce in the long run as well.

b) True, as they are gaining less from the product variety and losing more in the market due to competition there are too many firm in the market.

c) True, the firms price will always exceed the marginal cost of the firm

d) True, in the long run many firm will be entering the market unless the firm in the market are making zero profit.