One Thing That Makes Monopolistic Competition Similar to Perfect Competition

question 100

Multiple Choice

One thing that makes monopolistic competition similar to perfect competition is that, in the:

• A) long run, both are guaranteed positive economic profit.
• B) short run, both are guaranteed positive economic profit.
• C) short run, neither can earn positive economic profit.
• D) long run, both will earn zero economic profit.
• E) long run, both could earn positive economic profit, but monopolistic competitors will earn more than perfect competitors will.

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Definitions:

Bond Premium

The amount by which the market price of a bond exceeds its principal amount or face value.

Effective Interest Rate

The actual return on an investment, taking into account the effect of compounding interest, as opposed to the nominal rate.

Interest Expense

The cost incurred by an entity for borrowing funds; this expense is reported on the income statement.

Stated Interest Rate

The nominal interest rate stated on a financial instrument, such as a loan or bond, without adjustment for compounding or market conditions.