Monopolistic Competition Is Characterized by Excess Capacity Because

question 215

Multiple Choice

Monopolistic competition is characterized by excess capacity because

• A)firms are always profitable in the long run.
• B)firms charge a price that is greater than marginal cost.
• C)firms produce at an output level less than the least-cost output.
• D)the demand for the product is perfectly elastic in this type of industry.

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Definitions:

Maturity Risk Premium

The additional return that investors require for holding a longer-term bond, compensating for the increased risk of price fluctuations and inflation over time.

Default Risk Premium

The additional yield that a borrower must pay to compensate the lender for the risk that the borrower may default on the loan.

Pure Rate

The real rate of interest that would exist in the market in the absence of inflation, default risk, and other factors that could affect nominal rates.

Pure Rate

The theoretical rate of return of an investment with no risk of financial loss, often considered as the base rate for determining risk-adjusted returns.