Question

and Due Dates HW17: Homework.Ch. 17: Monopolistic Competition and Advertising Resources Give Up? Feedback The given statements refer to the pricing, economic efficiency, and resource allocation for monopolistically competitive firms. Label the statements as being either true or false. Each term is used more than once. Statement 1: Monopolistically competitive firms will produce where price = marginal revenue = marginal cost in the short run. Statement 2: Monopolistically competitive firms are inefficient in their use of resources since they produce at the point where marginal revenue marginal cost, which means that price > marginal cost in the short run. Statement 3: Monopolistically competitive firms will have positive profits even in the long run. False Statement 4: Monopolistically competitive firms will have demand curves tangent to the left of minimum average total cost. This means that monopolistically competitive firms will not experience economies of scale in the long run. Hall-ROIT

Answer 1

Statement 1:

False

(MR = MC for profit maximization, but it will not be equal to price)

------------

Statement 2:

True

The monopolistic firm is inefficient, because Price is above MC and they do not produce at the minimum of ATC. It causes excess capacity in the market that is not used.

--------------

Statement 3:

False

Monopolistic firm will only earn zero economic profit in the long run.

----------------

Statement 4:

True

It means that firms will not produce at the level where the ATC is lowest. so, firm is not experiencing economy of scale.