How Does the Long-Run Equilibrium of a Monopolistically Competitive Industry

question 54

Multiple Choice

How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

• A)A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit.
• B)A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production.
• C)A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.
• D)A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level.

---

Definitions:

Combined Profit

The total profit earned by all firms in a particular market or industry, summed together.

Policies

Principles or rules established by organizations, governments, or groups to guide decisions and achieve rational outcomes.

Policies

Guidelines or principles that direct actions towards specific goals or objectives, often set by governments, organizations, or institutions.

Individual Transferable Quotas (ITQs)

Limits (quotas) set by a government or a fisheries commission on the total number or total weight of a species that an individual fisher can harvest during some particular time period; fishers can sell (transfer) the right to use all or part of their respective individual quotas to other fishers.