1. For monopolisticallycompetitive firms is it always likely in the long-run to
ID: 1162150 • Letter: 1
Question
1. For monopolisticallycompetitive firms is it always likely in the long-run to have zero-economic profit?
Monopolistically competitive firms in the long-run...
A.may continue to earn profit by reducing costsreducing costs.
B. may continue to earn profit by instead beginning to produce a product identical to competitors.
C. will continue to earn profit due to barriers to new firms entering the market.
D. will not continue to earn profit because the cost of production will rise as new firms enter the market.
E. will not continue to earn profit because monopolistically competitive firms produce identical products.
2. Using the graph, the short run output is maximized at the point
B. L2.
C. L3.
D. insufficient information to determine.
L1 L2 Labor (units)Explanation / Answer
Answer 1: Yes, a monopolistically competitive firm will earn zero economic profits in the long run.
Monopolistically competitive firms in the long-run will not continue to earn profit because the cost of production will rise as new firms enter the market.This is because as new firms enter the market, the demand for inputs used in the production process will rise and thus total cost rises which reduces the normal profits of the firm to zero in the long run.
Answer 2:
Option C. The short run output is maximized at point L3 where total marginal product is positive and total product is rising and not falling.
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