A Firm in Long-Run Equilibrium Under Monopolistic Competition Will Earn

question 16

Multiple Choice

A firm in long-run equilibrium under monopolistic competition will earn

• A) positive oligopoly profits because each firm sells a differentiated product.
• B) zero economic profits because of free entry.
• C) negative economic profits because it has economies of scale.
• D) positive economic profit if it engages in international trade.
• E) positive monopoly profits because each sells a differentiated product.

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Definitions:

Price Ceiling

A government-imposed limit on how high a price can be charged on a product or service, intended to protect consumers from conditions that could make commodities prohibitively expensive.

Price Floor

A government-imposed minimum price that can be charged for goods or services, intended to prevent prices from falling too low.

Price Ceiling

A government-imposed limit on how high a price can be charged for a product or service.

Equilibrium Price

The market price at which the quantity demanded of a good equals the quantity supplied, resulting in no surplus or shortage in the market.