In a Monopolistically Competitive Market, a Successful New Restaurant

question 1

Multiple Choice

In a monopolistically competitive market, a successful new restaurant

• A)can earn economic profits in the long run if it uses barriers to restrict entry by new restaurants.
• B)will earn zero economic profit in the long run because of free entry, but competition will lead restaurants to offer different versions of the same product.
• C)will face high entry barriers because of health and safety regulations to which all restaurants are subject.
• D)must obtain a trademark to ensure that it will break even in the long run.

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Definitions:

Variable Cost

Costs that vary directly with the level of production or sales volume, such as materials and labor.

Selling and Administrative Costs

Expenses related directly to the marketing and management of a company, excluding costs associated with the production or purchase of goods.

Markup Percentage

The percentage added to the cost of goods to cover overhead and profit.

Product Cost

The total cost associated with making or acquiring a product, including materials, labor, and overhead costs.