Answer to Question #52958 in Microeconomics for Yana

Question

MULTIPLE CHOICE
1. Which of the following statements best describes the price, output, and profit conditions of
monopolistic competition?
a. Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run.
b. Price will always equal average variable cost in the short run and either profits or losses
may result in the long run.
c. Marginal revenue will equal marginal cost at the short run, profit-maximizing level of
output; in the long run, economic profit will be zero.
d. Marginal revenue will equal average total cost in the short run; long-run economic profits
will be zero.

2. In the long run, a monopolistic competitive firm will operate at a price which:
a. is higher than minimum long-run average cost.
b. equals minimum long-run average cost.
c. equals marginal cost.
d. none of these.

Answer 1

c. Marginal revenue will equal marginal cost at the short run, profit-maximizing level
of  output; in the long run, economic profit will be zero.
b. equals minimum long-run average cost.