Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly ?
Correct answer: C. The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run
- A. the monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve
- B. the monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost
- C. The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run
- D. Both the monopolist and the monopolistic competitor operate at the efficient scale
Explanation
Both market structures allow price to exceed marginal cost, but free entry in monopolistic competition eliminates economic profit in the long run. A monopolist may retain long-run profit because entry is blocked.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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