In a Monopolistically Competitive Market, a Successful New Restaurant

question 1

Multiple Choice

In a monopolistically competitive market, a successful new restaurant

• A)can earn economic profits in the long run if it uses barriers to restrict entry by new restaurants.
• B)will earn zero economic profit in the long run because of free entry, but competition will lead restaurants to offer different versions of the same product.
• C)will face high entry barriers because of health and safety regulations to which all restaurants are subject.
• D)must obtain a trademark to ensure that it will break even in the long run.

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Definitions:

Sunk Cost

A cost that has already been incurred and cannot be recovered, which should not influence future business decisions.

Accumulated Depreciation

The total depreciation expense allocated for a tangible asset over its usage period, reducing its book value.

Replacement Equipment

Items purchased to replace older assets within a business, ensuring operational efficiency and continuity.

Variable Cost Method

A cost accounting method that only applies variable costs to inventory, excluding fixed costs from cost of goods sold calculations.