In the Short Run, a Firm in a Monopolistic Competition

question 228

Multiple Choice

In the short run, a firm in a monopolistic competition will produce the amount of output where its

• A) marginal revenue equals marginal cost and will set its price according to the demand for that amount of output.
• B) marginal revenue equals marginal cost and takes the market price as given.
• C) average revenue equals average cost and will set its price according to the demand for that amount of output.
• D) average revenue equals its average cost and takes the market price as given.

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Definitions:

Diminishing-returns Theory

The principle that says that if one factor of production is increased while others are held constant, the incremental output will eventually decrease.

Wage Disparity

The difference in wages earned by different groups of workers, often arising from factors such as occupation, education, experience, or gender.

Talent and Ability

The natural aptitude or acquired skills possessed by individuals that enable them to perform certain tasks or excel in certain fields.

Median Earnings

The middle value of income earned, such that half of earners make more and half make less, often used to measure central tendency of income distribution.