Suppose That a Monopolistically Competitive Firm Is in Long-Run Equilibrium

question 233

Multiple Choice

Suppose that a monopolistically competitive firm is in long-run equilibrium.The firm's demand curve is tangent to its average cost curve at Q = 25.Average cost is minimized at Q = 35, where average cost is $50.Which of the following is true?

• A)This firm charges $50 for the good.
• B)This firm charges more than $50 for the good.
• C)This firm charges less than $50 for the good.
• D)The firm has excess capacity at all output levels greater than 35 units.
• E)Average cost is $50 at the profit-maximizing output level.

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Definitions:

Competitive Industry

An industry where numerous sellers offer similar products, ensuring no single entity can dictate prices, fostering competition based on price, quality, and innovation.

Monopolist

An individual or entity that is the sole provider of a particular good or service in the market, enabling them to control prices.

Substitutes

Goods or services that can be used in place of each other, where the increase in price of one leads to an increase in demand for the other.

Imperfectly Competitive

Describes markets where individual sellers have some control over the price of their goods or services, as opposed to perfect competition where none exists.