Question 6 In a monopolistically competitive industry, if price is above average
ID: 1126550 • Letter: Q
Question
Question 6
In a monopolistically competitive industry, if price is above average total cost then:
Economic profits are greater than zero and barriers to entry will prevent potential competitors from competing profits down to the normal level.
Economic profits are less than zero and exit from the industry will occur until price rises to equal average total costs.
Economic profits are greater than zero and entry will occur until price falls to average total costs.
Economic profits are less than zero and exit from the industry will occur until price rises to equal average variable costs.
Economic profits are greater than zero and entry will occur until price falls to average variable costs
Question 8
In the graph above, which statement is TRUE?
The typical gas station's economic profits are greater than zero and this will attract entry into the industry, producing a fall in the typical gas station's demand, price, and profits.
The typical gas station's economic profits are less than zero and this will induce exit from the industry, producing a rise in the typical gas station's demand, price, and profits.
The typical gas station's economic profits are greater than zero and this will attract entry into the industry, producing an increase in the supply curve for the industry and a fall in the typical gas station's price, and profits.
The typical gas station's economic profits are less than zero and this will induce exit from the industry, producing a decrease in the supply curve for the industry and a rise in the typical station's price and profits.
The typical gas station's economic profits are greater than zero and this will attract entry into the industry, producing a fall in the typical gas station's demand and a rise in the supply curve for the industry, and a fall in the typical gas station's price and profits.
1 points
Question 9
In a monopolistically competitive industry, if the typical producer's price is below their average total costs, then:
Economic profits are less than zero and exit will occur until price rises to point where firms are able to earn normal profits.
Economic profits are greater than zero and entry will occur until price falls to average total costs.
Economic profits are less than zero and exit from the industry will occur until price rises to equal average variable costs.
Economic profits are greater than zero and entry will occur until price rises to average total costs.
Economic profits are less than zero and entry into the industry will occur until price rises to equal average total costs.
Economic profits are greater than zero and barriers to entry will prevent potential competitors from competing profits down to the normal level.
Economic profits are less than zero and exit from the industry will occur until price rises to equal average total costs.
Economic profits are greater than zero and entry will occur until price falls to average total costs.
Economic profits are less than zero and exit from the industry will occur until price rises to equal average variable costs.
Economic profits are greater than zero and entry will occur until price falls to average variable costs
Explanation / Answer
Q6. In a monopolistically competitive industry, if price is above average total cost then economic profits are greater than zero and entry will occur until price falls to average total costs. The price being charged above average costs means that the firm is earning above the normal profits and more firms will be attracted by excess normal or positive economic profits. New firms will continue to enter until the price equals the average total costs.
Q8. No graph given.
Q9. In a monopolistically competitive industry, if the typical producer's price is below their average total costs, then economic profits are less than zero and entry into the industry will occur until price rises to equal average total costs. The losses will prompt the firms to leave the industry to the extent that price is increased and equal to average total costs of production.
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