In the Short Run, a Monopolistically Competitive Firm

question 18

Multiple Choice

In the short run, a monopolistically competitive firm

• A)will go out of business if it is incurring an economic loss.
• B)always earns a positive economic profit.
• C)may earn a positive, negative, or zero economic profit.
• D)never incurs an economic loss.
• E)will maximize profit by producing output such that price equals rising marginal cost.

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Definitions:

Dry-Cleaning Market

The sector of the economy that provides services of cleaning clothes and textiles using a chemical solvent rather than water.

Monopolistically Competitive

Describes a market structure in which many firms sell products that are similar but not identical, allowing for some degree of market power.

Economic Profits

A rephrased definition: The surplus achieved by a firm after accounting for both the operating expenses and the opportunity costs of all resources employed.

Monopolistically Competitive

A market structure featuring many firms selling products that are similar but not identical, allowing for some degree of market power and price setting.