Can positive economic profits persist under monopolistic competition in the long run. Why?
No, because economic profits will entice new firms to enter the market. When more firms enter the market, each firm's demand curve will shift downward. The demand curve?and hence also the MR curve?will be pushed down so far by the entry of new rivals that when the firm equates MC and MR in an attempt to maximize profits, it simultaneously equates price (P) and average cost (AC) so that economic profits are zero.
You might also like to view...
Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basket's cost was $80; in 2008, the basket's cost was $92; and in 2010, the basket's cost was $108 . The base year must be
a. 2002. b. 2008. c. one of the years between 2008 and 2010. d. The base year cannot be determined from the given information.
The term factor of production refers to
A. Labor only. B. Factories and machinery only. C. Only those goods that are produced and then used to produce other goods and services. D. Any resource input used to produce goods and services.
One way the government can boost the economy out of a recession is:
A. with public announcements telling the public to save their money. B. by increasing government spending. C. by setting price ceilings on most goods so people can afford them. D. None of these will help an economy in recession.
The utilities commission in a city is currently examining pay telephone service in the city. The commission has been asked to evaluate a proposal by a city council member to place a $0.10 price ceiling on local pay phone service
The staff economist at the utilities commission estimates the demand and supply curves for pay telephone service as follows: QD = 1600 - 2400P QS = 200 + 3200P, where P = price of a pay telephone call, and Q = number of pay telephone calls per month. a. Determine the equilibrium price and quantity that will prevail without the price ceiling. b. Analyze the quantity that will be available with the price ceiling (in the long-run). c. The city council realizes that the telephone company could curtail pay phone service in response to the ceiling. To prevent this, the council plans to impose a requirement that the telephone company must maintain the current number of pay phones. In light of this additional restriction, what will be the likely impact of the price ceiling?