Which is true of a firm in monopolistic competition in the long run, but not true of perfect competition in the long run?

Choose 1 answer:
(A) There is no economic profit.
(B) There are no barriers to entry.
(C) There are identical products.

D There is excess capacity.
(E) There is only one buyer.

Question

Which is true of a firm in monopolistic competition in the long run, but not true of perfect competition in the long run?

Choose 1 answer:
(A) There is no economic profit.
(B) There are no barriers to entry.
(C) There are identical products.

D There is excess capacity.
(E) There is only one buyer.

Accepted Answer

∻Solution∻ ‖ a ⋮ Monopolistic Competition: In the long run, firms in monopolistic competition produce at a point where price equals average total cost (P = ATC), leading to zero economic profit. However, they do not produce at the minimum point of the ATC curve, resulting in excess capacity. ‖ ‖ b ⋮ Perfect Competition: In the long run, firms in perfect competition also produce where price equals average total cost (P = ATC), leading to zero economic profit. However, they produce at the minimum point of the ATC curve, meaning there is no excess capacity. ‖ ‖ c ⋮ Excess Capacity: Excess capacity occurs when firms produce below their efficient scale, which is common in monopolistic competition due to product differentiation and downward-sloping demand curves. ‖ ∻Answer∻ ⚹ (D) There is excess capacity. ⚹ ∻Key Concept∻ ⚹ Excess capacity in monopolistic competition ⚹ ∻Explanation∻ ⚹ In monopolistic competition, firms have excess capacity in the long run because they do not produce at the minimum point of their average total cost curve, unlike firms in perfect competition. ⚹◊What is the difference in terms of excess capacity between a firm in monopolistic competition and a firm in perfect competition in the long run⍭ Generate me a similar question◊

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