Assume That Economic Profits Are Earned by Monopolistically Competitive Firms

question 229

Multiple Choice

Assume that economic profits are earned by monopolistically competitive firms. What will happen in the long run?

• A) New firms enter, the market demand rises, and the price for each firm falls until normal profits occur.
• B) New firms enter, the market supply rises, and the price for each firm falls until P = MC for each firm.
• C) New firms enter and demand for each firm's product rises until economic profits are eliminated.
• D) New firms enter and demand for each firm's product falls until economic profits are zero.

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Definitions:

Signal-Detection Theory

A means to quantify the ability to discern between information-bearing patterns and random patterns that distract from the information in the presence of uncertainty.

Just Noticeable Difference

The smallest change in intensity of a stimulus that can be detected by the sensory system.

Absolute Threshold

The minimum stimulus intensity required to be detectable by the senses.

Stimulus Intensity

The magnitude or strength of a stimulus, which can affect the perception and response of the sensory system to that stimulus.