The major difference between a monopolistic competition and monopoly is, a. monopoly is a price taker and a firm in monopolistic competition is a price maker. b. there are barriers to entry and exit in monopolistic competition and freedom to enter and exit in monopoly. c. only a monopoly can earn an abnormal profit in the long run. d. None of these.

The major difference between a monopolistic competition and monopoly is, a. monopoly is a price taker and a firm in monopolistic competition is a price maker. b. there are barriers to entry and exit in monopolistic competition and freedom to enter and exit in monopoly. c. only a monopoly can earn an abnormal profit in the long run. d. None of these.

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: Monopolistic Competition

Section: Chapter Questions

Problem 1QCMC

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(a) Does a monopolistically competitive firm have an incentive to produce at the level of output that minimizes the average total cost at the long run equilibrium? Explain with a diagram. (b) Suppose CLP Holdings Limited is a natural monopolist with constant marginal cost. Draw a diagram to indicate the profit-maximizing level of output, the profit-maximizing price, and the size of the profit. If the government wants to increase the market efficiency through price regulation, would you suggest the government setting the price equal to the firm’s marginal cost or its average total cost? Explain in detail with the diagram in part (i).