Firms Will Stop Exiting a Market Only When

question 8

Multiple Choice

Firms will stop exiting a market only when

• A)marginal revenue equals price.
• B)marginal revenue equals marginal cost.
• C)all remaining firms are making an economic profit.
• D)all remaining firms are making zero economic profit.
• E)marginal revenue equals average fixed cost.

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Definitions:

Monopolistic Competition

A term often used by economists to describe markets characterized by a large number of sellers that supply differentiated products to a market with low barriers to entry. Essentially, it is an alternative term for a competitive price-searcher market.

Marginal Revenue

Extra profit generated from the sale of one more unit of a product or service.

Marginal Cost

The additional cost incurred to produce one additional unit of a good or service.

Average Variable Cost

The variable cost of production (costs that change with output level) divided by the quantity of output produced.