Consider a Monopolistically Competitive Industry in Long-Run Equilibrium

question 64

Multiple Choice

Consider a monopolistically competitive industry in long-run equilibrium.Will this industry be productively efficient?

• A)Yes.Since the firms are in long-run equilibrium,they will all be producing at the minimum of their LRAC curves.
• B)Yes.Since the firms are in long-run equilibrium,they will all be operating on their LRAC curves.
• C)Yes.In long-run equilibrium,each firm is producing at an output level where price is equal to marginal cost.
• D)No.Firms are selling their output at a level where price exceeds marginal cost and thus,by definition,cannot be productively efficient.
• E)No.Since firms are selling differentiated products and there is no industry-wide price,we cannot conclude that marginal cost will be equated across all firms.

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Definitions:

Opportunity Cost

Opportunity cost refers to the benefit that is missed or given up when choosing one alternative over another.

Mutually Advantageous

A situation or agreement that provides benefits to all parties involved, often used in the context of trade or negotiations.

Ice Cream

A frozen dessert made from dairy products, such as milk and cream, often combined with fruits, flavors, or other ingredients.

Apple Pie

A traditional dessert pie, originating from England, made with apple filling enclosed in a pastry crust, often accompanied by ice cream, whipped cream, or cheddar cheese.