When a Market Is Monopolistically Competitive, the Typical Firm in the Market

question 2

Multiple Choice

When a market is monopolistically competitive, the typical firm in the market is likely to experience a

• A)positive profit in the short run and in the long run.
• B)positive or negative profit in the short run and a zero profit in the long run.
• C)zero profit in the short run and a positive or negative profit in the long run.
• D)zero profit in the short run and in the long run.

---

Definitions:

Fixed Expenses

Regular expenses that do not vary in total over a wide range of activity levels.

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted; indicates the contribution towards covering fixed expenses and generating profit.

Net Income

The income a company retains after deducting all costs, taxes, and expenses from its total revenue.

Discretionary Fixed Costs

Discretionary fixed costs are fixed expenses that can be adjusted or eliminated without directly impacting the short-term productivity of the business, such as advertising or research and development costs.