Question

1. Monopolistic competitive firms and perfectly competitive firms are similar in that both

Group of answer choices

set price equal to marginal cost.

face a horizontal demand curve.

face no barriers to entry or exit.

produce a homogeneous product.

all of the above

2. Does the monopolistic competitive firm exhibit resource-allocative efficiency?

Group of answer choices

No, because at its chosen quantity of output, price does not equal the lowest possible average total cost.

Yes, because at its chosen quantity of output, price equals marginal cost.

No, because at its chosen quantity of output, price is greater than marginal cost.

Yes, because at its chosen quantity of output, price is less than marginal cost.

3. If the top four firms account for $85 billion in sales and total industry sales are $250 billion, it follows that the four-firm concentration ratio is

Group of answer choices

0.34.

0.66.

1.34.

1.66.

Answer 1

1.

face no barriers to entry or exit.

Explanation :

Monopolistically competitive firm produce differentiate product. It face downward sloping demand curve. And set price more than marginal cost. There is free entry and exit.

2.

No, because at its chosen quantity of output, price is greater than marginal cost.

Explanation :

Monopolistically competitive firm faces downward sloping demand curve and marginal revenue curve for monopolistically competitive firm is below the demand curve. And firm maximizes its profit where MR equals MC. And charge price on the demand curve above where MR equals MC. Allocative efficiency is where price is equals to MC. But monopolistically competitive firm charges price more than MC.

3.

0.34

Explanation :

Ratio = four firm sale/industry sale

=85/250

=0.34