The Figure Below Shows the Revenue and Cost Curves of a Monopolistically

question 45

Multiple Choice

The figure below shows the revenue and cost curves of a monopolistically competitive firm. Figure: 11.2 In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC₁ and ATC₂: Average total cost curves
MC: Marginal cost curve
-In Figure 11.2,assume that the average total cost of the firm is represented by the curve ATC₂.In the long run,we would expect:

• A)entry of firms into the market because economic profits exist.
• B)exit of firms from the market because the existing firms suffer economic losses.
• C)that demand for each firm will increase.
• D)the market to become perfectly competitive.
• E)the market to become a monopoly.

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Definitions:

Giffen Good

A type of inferior good for which demand increases as its price increases, contrary to the typical law of demand.

Slutsky Substitution Effect

A concept in economics that describes how a change in the price of a good affects consumption patterns, separating the effect into income and substitution effects.

Indifference Curve

A graph that shows different combinations of two goods among which a consumer is indifferent, implying the same level of utility for each combination.

Hicks Version

Refers to John Hicks' adaptation of consumer demand theory, particularly in relation to indifference curves and utility maximization.