1) Which of the following is not true about a monopolistic competitive firm? there are many...

1) Which of the following is not true about a monopolistic competitive firm?

there are many sellers and buyers
firms sell slightly differentiated products
barriers to entry make it prohibitively difficult for new firms to enter industry
A and C

2) The monopolistic competitive firm is similar to a monopolist firm, insomuch as they

always earn positive economic profits
are both resource allocative efficient
are price searchers
are both characterized as having many sellers and buyers

3) True or false: the productive efficient firm produces minimum cost output (Q = MCO)

A) True

B) False

Solutions

Expert Solution

1. Answer: C. barriers to entry make it prohibitively difficult for new firms to enter industry.

In a monopolistic competitive industry, firms are free to enter the industry or leave it.

2. C. are price searchers.

The price searcher is a seller who sells a product and influences its price by changing its quantity. In monopoly market the seller influence the market price by fixing a higher price and limiting the quantity. In monopolistic competition if the product differentiation is high, the firm will fix a high price since the demand is inelastic. On the other hand if the demand is more elastic due to low degree of product differentiation, the firm will fix a lower price.

3. Answer: True.

Minimum cost output is the level of output where the average cost is the lowest and the marginal cost equals average cost. A firm is said to be productively efficient when it chooses to produce a volume of output where the average cost is the lowest.

Rahul Sunny answered 7 months ago

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