Suppose There Are Many Independent Dry Cleaners in Your City,each

question 65

Multiple Choice

Suppose there are many independent dry cleaners in your city,each of which is earning economic profits.According to the theory of monopolistic competition,

• A)existing dry cleaners will engage in non- price competition and maintain their profits in the long run.
• B)existing dry cleaners will cooperate and maximize their joint profits.
• C)existing dry cleaners will cooperate and restrict entry of new firms.
• D)new dry cleaners will enter this market until each firm is earning zero profits.
• E)existing dry cleaners will expand until they reach the quantity associated with minimum long- run average cost.

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Definitions:

Profitability

A measure of how efficiently a company or project generates profit in relation to its revenue or investments.

Times Interest Earned

A financial ratio that measures a company’s ability to meet its debt obligations, calculated by dividing earnings before interest and taxes (EBIT) by interest expenses.

Interest Payments

The amount paid by a borrower to a lender over a period of time for the use of borrowed money, typically expressed as an annual percentage rate.

Earnings Decrease

This term refers to a reduction in a company’s net income or earnings per share (EPS) in comparison to a previous period, indicating a decline in profitability.