When a profit-maximizing firm in a monopolistic competitive market is in long-run equilibrium, marginal cost is...

When a profit-maximizing firm in a monopolistic competitive market is in long-run equilibrium, marginal cost is rising since an increase in production would increase average total cost.

true or false

The product-variety externality associated with monopolistic competition arises because in markets that are monopolistic competitive markets, firms try to differentiate their products.

true or false

If the monopolistic competitive firm is currently producing output at a level where the marginal cost curve intersects the demand curve, then it is producing at the social optimum; however, reducing output will cause profit to increase because marginal cost exceeds marginal revenue at the social optimum.

true or false

Solutions

Expert Solution

a) False, if they are in the long run equilibrium they will just produce at the point were the MR=MC and not produce any more.

b) true, as there are many firms and they all have some differentiated products the product variety externality occurs.

c) True at the socially optimum level the firm will not be able to produce profitably because then in that case the MC wlll be more than the MR.

Rahul Sunny answered 1 year ago

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