Why Do Most Firms in Monopolistic Competition Typically Make Zero

question 238

Multiple Choice

Why do most firms in monopolistic competition typically make zero profit in the long run?

• A)because firms produce differentiated products
• B)because the lack of entry barriers would compete away profits
• C)because firms do not produce at their minimum efficient scale
• D)because the total market is not large enough to accommodate so many firms

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Definitions:

Price Inelastic

Refers to a situation where the quantity demanded or supplied of a good or service changes by a smaller percentage than changes in price.

Alcohol Tax

A tax imposed on the sale of alcoholic beverages, often used as a means to discourage excessive drinking and to generate government revenue.

Revenue

The total amount of money generated by a company from its business activities, such as sales of goods or services, before any expenses are subtracted.

Price Inelastic

Describes a situation where the demand for a product does not change significantly when its price changes.