The Entry and Exit of Firms in a Monopolistically Competitive

question 221

Multiple Choice

The entry and exit of firms in a monopolistically competitive market guarantees that

• A) marginal revenue equals marginal cost, and average total cost is minimised.
• B) firms can earn economic profits in the long run.
• C) price equals average total cost in the long run.
• D) firms can earn economic profits in the short run.

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Definitions:

Consumption Spending

The total value of all goods and services consumed by households within a certain period.

Inflation Rate

The percentage change in the price level of goods and services in an economy over a period of time, often indicating the decrease in purchasing power of a currency.

Marginal Propensity

Marginal propensity measures the change in an economic agent's consumption or saving habits in response to a change in income, often used to analyze consumer behavior.

Disposable Income

The net amount households have to save and spend after factoring in income taxes.