The correct option that defines the characteristics of
Answer to Problem 22MCQ
Option e is correct.
Explanation of Solution
Explanation for correct option:
e.
Firms under monopolistic competition industry works at excess capacity. This is because they make no profit if marginal prices are equal to average total cost. So, firm’s sell where prices are more than the marginal cost and produces less quantity then the quantity at minimum average cost output. Therefore, option e is correct.
Explanation for incorrect options:
a.
As the firm operates at the level lower than the capacity at which minimum average total cost can be attain. Therefore, option a is incorrect.
b.
c.
In long run, monopolistic competition does not earn positive profit instead in long run economic profits are equal to zero as it is eliminated by exit or entry of the firms. Therefore, option c is incorrect
d.
Firms operate at the output level less than the output level where average total cost can be minimized. This is because firm is not ready to sell at lower prices so they produce less to charge higher prices for their produce. Therefore, option d is incorrect.
Monopolistic market structure: Market structure where there are many firms selling identical but products with different features. There are low barriers to entry and exit which allows firms to enter the market easily.
Chapter 12R Solutions
Krugman's Economics For The Ap® Course
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