(a)
Whether the monopolistically competitive firms produce economic profits because they are protected.
(a)
Answer to Problem 1P
Disagree.
Explanation of Solution
There are many buyers and sellers in the market. The sellers sell differentiated products which means there is competition in the market. However, it is important to note that there are no barriers to entry and exit in
Monopolistic competition: Monopolistic competition is a type of imperfect competition where many producers produce and sell differentiated products and there is freedom of entry and exit.
(b)
Whether the monopolistically competitive firms are efficient in the long run.
(b)
Answer to Problem 1P
Disagree.
Explanation of Solution
There are large number of buyers and sellers, product differentiation as well as freedom of entry and exit into and out of the market under the monopolistic competition. However, it is important to note that the price in the monopolistic competition does not equal the marginal cost either in the short run or in the long run, which means that the monopolistically competitive industry is not efficient in the long run. Thus, the statement is not agreeable.
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Chapter 15 Solutions
Principles of Microeconomics
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