In the Short Run, a Monopolistically Competitive Firm Produces at the Optimal

question 12

Multiple Choice

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits.Which of the following describes how this firm will adjust in the long run?

• A)The entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output and the price the firm can charge until price equals average total cost.
• B)The entry of new firms shifts the firm's demand and marginal revenue curves leftward, decreasing the firm's level of output and increasing the price the firm can charge until price equals average total cost.
• C)The entry of new firms shifts the firm's marginal cost and average cost curves downward, decreasing the firm's level of output and the price the firm can charge until price equals average total cost.
• D)The exit of firms shifts the firm's demand and marginal revenue curves rightward, increasing the firm's level of output and the price the firm can charge until price equals average total cost.

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Definitions:

Sherman Act

The Sherman Act is a landmark federal statute in the field of U.S. antitrust law passed by Congress in 1890, which prohibits monopolistic business practices and promotes competition.

Illegal Per Se

Refers to actions or conditions that are inherently illegal, without the need for additional proof of their harmfulness or illegality.

Market Allocations

Agreements between competitors to divide markets among themselves, often considered illegal under antitrust laws.

Sherman Act

The Sherman Act is landmark federal legislation passed in 1890 aimed at promoting fair competition for the benefit of consumers by prohibiting monopolies and restrictive trade practices.