Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that
monopolistically competitive markets are less efficient than perfectly competitive markets?
A) In contrast to perfectly competitive markets, neither allocative efficiency nor productive efficiency are achieved in monopolistically competitive markets.
B) In contrast to perfectly competitive markets, firms in monopolistically competitive markets earn economic profits in long-run equilibrium.
C) In contrast to perfectly competitive markets, firms in monopolistically competitive markets do not produce where price equals average total cost in long-run equilibrium.
D) In contrast to perfectly competitive markets, firms in monopolistically competitive markets can charge a price greater than average total cost in the short run.
Answer: A
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An increase in supply will have what effect on equilibrium price and quantity?
a. Price will increase; quantity will decrease. b. Price will decrease; quantity will increase. c. Both price and quantity will increase. d. Both price and quantity will decrease.
Which of the following does this equation show?
a. inelastic supply
b. inelastic demand
c. elastic supply
d. elastic demand
A U.S. tariff on steel would increase the domestic quantity of steel demanded.
Answer the following statement true (T) or false (F)
Competitive firms will always try to earn more than a normal profit by doing the following, except:
A. Adopting better production technology B. Improving their business organization and operation C. Developing new products D. Raising the prices of their existing products