Tombstones Are Produced in a Monopolistic Competitive Market

question 87

Multiple Choice

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

• A) new tombstone firms will want to enter.
• B) this producer is losing $2,000 a week.
• C) this producer is making an economic profit of $400.
• D) this producer should increase production.

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Definitions:

Inelastic

A description of a product or service's demand when consumers' demand is relatively insensitive to price changes.

Price Elasticity of Demand Coefficient

A metric that determines how the demand for a product reacts to adjustments in its price.

Midpoint Formula

A mathematical method used to calculate the average or midpoint of two points on a line, often used in economics to find the elasticity of demand.