Table 16-5 This Table Shows the Demand Schedule, Marginal Cost, and Average

question 11

Multiple Choice

Table 16-5
This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm.
-Refer to Table 16-5. Which of the following statements regarding this monopolistically competitive firm is correct?

• A)New firms will enter this market in the long run since firm profits are greater than zero.
• B)Firms will leave this market in the long run since firm profits are less than zero.
• C)This firm is currently in long-run equilibrium.
• D)This firm is currently in long-run equilibrium, and the firm is producing its efficient scale of output.

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Definitions:

Diminishing Marginal Rate

The principle that as the quantidade of a variable input increases, with all other inputs fixed, a point will be reached where the additions to output will begin to decrease.

Substitution

The economic principle describing how consumers or producers replace one good or service with another in response to changes in price or other factors.

Substitution Effect

The substitution effect describes a change in consumption patterns due to shifts in relative prices, where consumers prefer cheaper alternatives when the price of a good rises, keeping their utility level constant.

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, in contrast to a normal good.