Question

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

a	short run, neither can earn positive economic profit.

b	long run, both are guaranteed positive economic profit.

c	long run, both will earn zero economic profit.

d	short run, both are guaranteed positive economic profit.

e	long run, both could earn positive economic profit, but monopolistic competitors will earn more than perfect competitors.

Refer to the following graph to answer the following questions:

Price, Costs, and Revenue (Dollars) MC 12 ATC MR 0 200 400 600 800 1,000 Quantity of Output (Units per Day)


In the long run, the demand curve for the monopolistically competitive firm would

a	move closer to the marginal revenue curve, but the marginal revenue curve would be held constant.

b	shift leftward.

c	remain the same, causing the entry of new firms to be impossible.

d	shift rightward, causing the entry of new firms into the industry.

e	shift rightward.

Answer 1

Question 1) option c)

Economic profit in long run is zero in both perfect competition & Monopolistic competition

In perfect competition, firm earns zero profit in both short & long run.

In Monopolistic competition firm earn positive profit in short run , but in long run P= AC, so profit is zero

Q2) option b)

In the long run firms will enter the industry attracted by the supernormal profits. Thus demand for the product of each firm will fall and it will shift to the left.