In monopolistic competition ______.
1.to maximize profits MR = MC, yet P > MC
2.people would be better off if output were reduced
3.output could be increased without an increase in total cost
4.A and B are true
Because monopolistically competitive firms charge a P > MC ______. 1. monopolistic competition is efficient
2. monopolistic competition is inefficient
3. the marginal benefit to society of an additional unit of output is below its cost
4. B and C are true
Do a little research then take a shot. What do you think?
people would be better off if output were reduced
The correct answer is 4. A and B are true.
In monopolistic competition, firms aim to maximize profits by setting their output level where marginal revenue (MR) equals marginal cost (MC). However, unlike in perfect competition where price equals marginal cost, in monopolistic competition, firms charge a price (P) that exceeds marginal cost (MC).
Explanation for answer choice 1:
Monopolistic competition is not perfectly efficient because firms in this market structure have some degree of market power, which allows them to set prices above marginal cost. In perfect competition, firms are price takers and cannot influence prices, resulting in the efficient use of resources and prices equal to marginal cost. Therefore, the fact that monopolistically competitive firms charge a price above marginal cost indicates that monopolistic competition is not efficient.
Explanation for answer choice 2:
In monopolistic competition, people would be better off if the output were reduced. This is because monopolistic competition involves firms differentiating their products through branding, marketing, or other characteristics. As a result, there is some degree of product differentiation, and consumers may be willing to pay a premium for a specific brand or product. Therefore, reducing the output would allow firms to charge higher prices, which can benefit the firms but may not be optimal from a consumer welfare perspective.
Explanation for the incorrect answer choices:
Answer choice 3: Output could be increased without an increase in total cost - This is not necessarily true in monopolistic competition, as increasing output typically requires additional resources, which can lead to increased costs.
Answer choice 3 in the second question: The marginal benefit to society of an additional unit of output is below its cost - This is not necessarily true either. While monopolistic competition may not be as efficient as perfect competition, it does not mean that the marginal benefit to society is always below its cost. It depends on the specific market conditions and individual firm behavior.