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Practice mode Monopoly & Competition

What is one source of inefficiency in monopolistic competition?

Correct answer D. Since price is above marginal cost, some units that buyers value in excess of their cost of production are not produced, causing a deadweight loss

Explanation

Because each firm prices above marginal cost, some units that consumers value more than they cost to make are never produced, which creates a deadweight loss.

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Question 02 Monopoly & Competition

Which statement correctly compares monopolistic competition with monopoly?

Correct answer D. The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run

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Question 03 Monopoly & Competition

A monopolistically competitive firm chooses the quantity at which marginal cost equals what, and how does it then set its price?

Correct answer B. Marginal revenue and then use the demand curve to determine the price consistent with this quantity

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Question 04 Monopoly & Competition

In terms of scale of production and pricing, how do monopolistically competitive firms behave?

Correct answer B. With excess capacity and charge a price above marginal cost

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