In Theory, in the Long Run, Monopolistically Competitive Firms Earn

question 63

Multiple Choice

In theory, in the long run, monopolistically competitive firms earn zero profits.However, in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

• A)gradually increase the mark-up on the goods produced
• B)lower the price of its products to expand its market share
• C)identify new markets and develop products precisely for those markets
• D)find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment

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Definitions:

Profitability Index

A ratio that calculates the relative profitability of an investment by dividing the present value of future expected cash flows by the initial investment cost.

Initial Investment

The amount of money used to start a project, investment, or business.

Cash Inflows

Funds entering a business from various sources, including sales, investments, and financing activities, critical for maintaining liquidity.

Payback Period

The time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.