How Does the Long-Run Equilibrium of a Monopolistically Competitive Industry

question 54

Multiple Choice

How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

• A)A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit.
• B)A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production.
• C)A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.
• D)A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level.

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Definitions:

Appraisal Costs

Costs associated with the inspection and testing of materials and products to ensure quality standards are met.

Defects

Imperfections or faults in a product that cause it to be unsuitable for its intended use or significantly reduce its usability.

Throughput Accounting

An accounting method that focuses on the rate at which a company generates money through sales, rather than on traditional production costs.

Short-term Focus

Concentration on immediate goals or results, often at the expense of long-term objectives.