Why Can't an Economist Say for Certain That a Monopolistic

question 97

Multiple Choice

Why can't an economist say for certain that a monopolistic competitive firm will always earn zero economic profits in the long run?

• A) Barriers to entry exist.
• B) The very large number of buyers indicates that there will always be demand for the firm's product.
• C) The firms in the industry do not produce identical products.
• D) The firms practice price competition, so at least some firms will always be charging a lower price than other firms and will sell more as a result.
• E) The firms face a horizontal demand curve.

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Definitions:

Excess Reserves

The reserves held by banks over and above the minimum required by the central bank, available for lending or investment.

Money Supply

The total financial resources existing in an economy at a certain time.

Open Market Operations

These are financial activities where central banks buy or sell government securities in the open market to control the money supply and influence interest rates.

Required Reserve Ratio

The fraction of deposits that a bank is mandated by regulations to hold in reserve and not loan out.