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.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Microeconomics
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.
Practise Microeconomics
1,742 free Microeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Microeconomics questions
When firms enter a monopolistically competitive market and the business-stealing externality is larger than the product-variety externality then ?
The use of the word "monopoly" in the name of the market structure called "monopolistic competition" refers to the fact that ?
Defenders of the use of brand names argue that brand names ?
Which of the following is true regarding the production and pricing decisions of monopolistically competitive firms? Monopolistically competitive firms choose the quantity at which marginal cost equals ?
Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly ?
Which of the following is not a characteristic of a monopolistically competitive market ?