In the New Keynesian View a Monopolistically Competitive Firm May

question 13

Multiple Choice

In the new Keynesian view a monopolistically competitive firm may fail to increase the price of its product as demand increases because

• A)if it does so it will lose all of its customers.
• B)the cost to it of changing prices may exceed the benefit of doing so.
• C)prices of monopolistically competitive firms are regulated by the federal government and may only be changed with permission.
• D)for a monopolistically competitive firm, price is below marginal cost.

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Definitions:

Social Cost

The cost to society as a whole due to an activity, including both direct costs incurred and indirect effects (such as environmental damage or health impacts).

Marginal Cost

Marginal Cost is the additional cost incurred from producing one more unit of a good or service, an important concept in economics for decision-making regarding production levels.

Deadweight Loss

describes a loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is distorted by external factors like taxes or subsidies.

Demand Curve

represents the relationship between the price of a good and the quantity of that good consumers are willing to purchase.