When a profit-maximizing firm in a monopolistically competitive market charges a
ID: 1160998 • Letter: W
Question
When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,
The firm must be earning a positive economic profit
New firms will necessarily wish to enter the market in the long run
There is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity
The firm may be incurring economic losses
A.The firm must be earning a positive economic profit
B.New firms will necessarily wish to enter the market in the long run
C.There is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity
D.The firm may be incurring economic losses
Explanation / Answer
When a profit maximizing firm in a monopolistically competitive market charges a price higher than the marginal cost then it shows that firm is earning a positive economic profit in the short run.
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