For each of the following characteristics, indicate whether it describes a perfe

Question

For each of the following characteristics, indicate whether it describes a perfectly competitive firm, a monopolistically competitive firm, both, or neither. (Note: If the characteristic describes neither, leave the entire row unchecked.) Check all that apply.

Characteristic Perfectly Competitive Monopolistically Competitive Sells a product identical to that of its competitors Can earn economic profit in the short run Produces above the minimum of average total cost in the long run Charges a price that is the same as marginal cost Produces welfare-maximizing level of output Has marginal revenue less than price

Explanation / Answer

Answer

Sells a product identical to that of its competitors,

Characteristic Perfectly Competitive Monopolistically Competitive reason Yes No The perfectly competitive firm produces competitors, products, and monopolistic csompetetive firm produces differentiated products Can earn economic profit in the short run yes yes Both can earn profit or losses in short run Produces above the minimum of average total cost in the long run no yes long run the perfect comepetetive firm produces at minimum ATC=P and monopolisitc cmpetetive firm produces at P>min(ATC) Charges a price that is the same as marginal cost yes no for perfect competetive firm P=MC and monopolistic competitive firm MC=MR because the demand curve is downward sloping Produces welfare-maximizing level of output yes no the welfare is maximum at MC=P Has marginal revenue less than price no no for perfect competetive firm P=MR and monopolistic competitive firm P>MR because the demand curve is downward sloping

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