Why Do Most Firms in Monopolistic Competition Typically Make Zero

question 152

Multiple Choice

Why do most firms in monopolistic competition typically make zero profit in the long run?

• A)Because firms produce differentiated products
• B)Because the lack of entry barriers would compete away profits
• C)Because firms do not produce at their minimum efficient scale
• D)Because the total market is not large enough to accommodate so many firms

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Definitions:

Capital Structure

The particular combination of debt and equity used by a company to finance its overall operations and growth.

Cost Structure

The mix of fixed and variable cost used by a firm.

Financial Leverage

Utilizing borrowed funds to amplify the prospective gains of an investment.

Operating Leverage

The degree to which a company uses fixed operating costs, affecting its earnings before interest and taxes (EBIT) with changes in sales.