Question

In: Economics

1.If the firm is producing at a quantity of output where marginal cost exceeds marginal revenue,...

1.If the firm is producing at a quantity of output where marginal cost exceeds marginal revenue, then ________. (there can be multiple answers.)

A)the firm should reduce production

B)each marginal unit adds profit by bringing in more revenue than its cost

C)the firm's perceived demand will shift to the left

D)the excess profit would attract additional competition

2.In what way(s) is a monopolistically competitive firm inefficient?(there can be multiple answers.)

A) It does not produce at the minimum of its average cost curve.

B) It charges a price higher than marginal cost.

C) It produces where marginal revenue is equal to marginal cost.

3.Within a monopolistically competitive industry, it would be expected that: (there can be multiple answers.)

A)firms make a positive or negative economic profit in the short-run.

B)in the short-run, an innovative firm’s price is greater than their average cost.

C)firs make a positive economic profit in the long-run.

D)in the long-run, a typical firm’s price is greater than their average cost.

Expert Solution

1.

A

The output level should be reduced to the level where MR = MC.

At a given level, where, MC is exceeding MR, the firm is incurring losses.

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2.

A

B

C

A monopolistic firm has excess capacity, as it does not produce where the ATC is lowest. It makes the firm to show inefficiency as well. It makes the firm to put price that is more than the MC. But, profit maximizing output is achieved when MR equals MC.

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3.

A

B

Monopolistic firm can get positive or negative economic profit in the short run, depending upon the ATC level and market. But, in the long run, economic profit will be zero. Further, innovative firm, comes up with innovative product that is sold at higher price in the short run. So, its price is higher than the ATC in the short run.

Rahul Sunny answered 2 years ago

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