Question

For each of the following characteristics, say whether it describes a perfectly competitive firm, a monopolistically competitive firm, both, or neither.

1. Sells a differentiated product from its competitors
2. Has marginal revenue less than price
3. Earn economic profit in the long run
4. Produces at minimum of average total cost in the long run
5. Equates marginal revenue and marginal cost
6. Charges a price above marginal cost

Answer 1

a) Only the monopolistic firm will sell a differentiated goods.

b) Monopolistic competition has a marginal revenue less than the price.

c) only a monopoly will earn a profit in the long run.

d) Only the perfectly competitive firm will produce at the point were the ATC is the lowest.

e) Both the market matches the MR and MC.

f) a monopoly charges the price above the marginal cost.