A monopolistically competitive firm will not produce at lowest average cost: A)o

Question

A monopolistically competitive firm will not produce at lowest average cost: A)only if it produces a differentiated product because firms producing homogeneous products have horizontal demand curves B) regardless of whether it produces a differentiated or homogeneous product because both have a U-shaped average cost curves C) only if it produces a differentiated product because firms producing homogeneous products have downward sloping demand curves D) regardless of whether it produces a differentiated or homogeneous product because both have a horizontal demand curves E) regardless of whether it produces a differentiated or homogeneous product because both have downward sloping demand curves

Explanation / Answer

SOLUTION: option number a is correct.FIrst of all a monopolistic firm will never produce a homogeneous goods.In perfectly competitive market homogeneous goods are produced and they have horizontal demand curve.In the case of monopolistic competition they only produce differentiated products and the demand curve is downward sloping.And firms under monopolictic competitoion never produce at lowest avaerage cost rather they produce at MR = MC.

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