Which of the following is true with regard to monopolistically competitive firms scale of production and pricing decisions Monopolistically competitive firms produce ?
Correct answer: C. With excess capacity and charge a price above marginal cost
- A. at the efficient scale and charge a price equal to marginal cost
- B. at the efficient scale and charge a price above marginal cost
- C. With excess capacity and charge a price above marginal cost
- D. With excess capacity and charge a price equal to marginal cost
Explanation
Product differentiation gives a monopolistically competitive firm a downward-sloping demand curve, so its profit-maximizing price exceeds marginal cost. Long-run entry leaves firms operating below the minimum-cost efficient scale, creating excess capacity.
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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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