Question

compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are inefficient because thery  

a. do not lower the product price if put prices fall
b. waste resources by producing an excess amount of output
c. restrict their output levels to maximiz profirs
d make economic profits in the long run.

which of the following statement is true about a firm in a perfectly competitive market

a. the demand for its product is a downward sloping curve, because the law of demand states as price increases quantity demandedwill decrease.

b.the firm will earn zero economic profit in the log run.
c. advertising is vert improtant tool for this business if it wishes to increase asles revenue
d. the marginal revenue the firm earn from each additional unit will be different than the price it earns.

Answer 1

1. Compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are inefficient because they restrict their output levels to maximize profits. There is a net loss of consumer of producer and consumer surplus because it restricts its output level to maimize profits. Also these firms operate at an output where the average total cost is not at its minimum level.

Therefore the correct option is c.

2. In a perfectly competitive market, the firm will earn zero economic profit in the long run. In the long run if the firms are earning positive economic profits then more new firms will enter into the market. This will shift the supply curve to the right. Due to a shift in the supply curve to the right, the equilibrium price will decrease. Now the decrease in the price will cause the profits to go down. This will continue until the profits become zero.

Therefore the correct option is b.