Microeconomics

Monopolistic Competition

A monopolistically competitive market could be considered inefficient because:

A. Marginal revenue exceeds average revenue

B. Price exceeds marginal cost

C. Efficient scale is realized in the long run, but not in the short run

D. Markup pricing does not occur in any other market structure

I picked B?

The administrative burden of regulating price in monopolistically competive market:

A. small due to economies do scale

B. large because price is usually below marginal cost

C. large because of the large number of firms that produce differentiated products

D. small because firms produce with excess capacity

I picked B?


I already put this question on the board before. I had originally picked D. The reponse was to go with A. When I was reviewing some other quesitons in the book, there was a sentence that appeared to state the answer to this that went along with D.

Could you please take a second look?

A profit-maximizinf firm in monopolistically competitive market characterized by which of the following?

A. Average revenue exceeds marginal revenue.

B. Marginal revenue exceeds average revenue.

C. Average revenue is equal to marginal revenue.

D. Revenue is always maximized along with profit.

  1. 👍
  2. 👎
  3. 👁
  1. Q1, I agree

    Q2, why did you pick B? You already noted from Q1 that Price is above MC. I would go with C.

    Q3. I stand by my original answer. I confidently presume Revenue is Price*Quantity, and profit is Revenue less costs. Unless marginal costs are zero, the optimizing point will occur when profits are maximized which will be a different point where revenue is mazimized. Further, Price is also average revenue, and for a monopolist, Price will exceed MR.

    1. 👍
    2. 👎
  2. Perhaps you coud post the sentence(s) that caused you to go back to D; that may shed some light on our apparent confusion.

    1. 👍
    2. 👎
  3. For Q3. In the section of my text for Monopoplistic Competition and Welfare of Society. It says "one source of inefficieny is the markup of price over magainal cost." This is why I was thinking D was the answer.

    1. 👍
    2. 👎
  4. I fully agree with the quote, and the quote is referring to an area not covered by your initial question. Economically efficient allocation of resouces calls for the marginal cost of producing the last unit to equal the marginal benefit of that last unit. And marginal benefit is measured by the price that the "last" customer buys at; All other potential customers are unwilling to buy the product at that price. This has nothing to do with the profit maximizing position of the firm. The firm will produce where MC=MR, and for the monopolist, MC at the optimal point will be below price.

    1. 👍
    2. 👎

Respond to this Question

First Name

Your Response

Similar Questions

  1. Economics

    Suppose that a typical firm in a monopolistically competitive industry faces a demand curve given by: q = 60 - (1/2)p, where q is quantity sold per week. The firm's marginal cost curve is given by: MC = 60. 1. How much will the

  2. Economics

    . Consider total cost and total revenue given in the table below: QUANTITY 0 1 2 3 4 5 6 7 Total cost $8 $9 $10 $11 $13 $19 $27 $37 Total revenue 0 8 16 24 32 40 48 56 a. Calculate profit for each quantity. How much should the

  3. Economics

    The market for fertilizer is perfectly competitive. Firms in the market are producing output, but they are currently making economic losses. a. How does the price of fertilizer compare to the average total cost, the average

  4. Economics

    you are hired as the consultant to a monopolistically competitive firm. The firm reports the following information about its price, marginal cost, and average total cost. Can the firm possibly be maximizing profit? If the firm is

  1. Microeconomics

    45. The change in total output resulting from a 1-unit increase in the quantity of an input used, holding the quantities of all other inputs constant, is ______. (Points: 3) average cost average product marginal cost marginal

  2. Economics

    In a perfect competitive market setting,which of the following would be a true statement? a)market price automatically sets itself exactly at equilibrium b)market price rarely trends toward the equilibrium value c)wage rates trend

  3. Microeconomics

    Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film: Orson Alfred Woody Ingmar Frist film 7 5 3 2 Second

  4. Economics

    What prevents a monopolistic competition from being perfectly competitive? A. Consumers are not knowledgeable. B. The market is dominated by one firm. C. Products are not identical. D. The barriers to entry are significant. Is it

  1. economics

    A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue so $10, average total cost of $8 and fixed cost of $200. a. what is the profit? b. what is the marginal cost? c.

  2. Economics

    You’ve been hired by an unprofitable firm to determine whether it should shut down its unprofitable operation. The firm currently uses 70 workers to produce 300 units of output per day. The daily wage (per worker) is $100, and

  3. microeconomics

    50. The long-run average cost curve is tangent to an infinite number of ______. (Points: 3) total cost curves marginal cost curves average variable cost curves I picked average total cost curves 51. The assumptions of perfect

  4. economics

    In long-run equilibrium, the perfectly competitive firm's price is equal to which of the following: short-run marginal cost minimum short-run average total cost marginal revenue all the above I think that it is all the above. Am I

You can view more similar questions or ask a new question.