In monopoly and monopolistic competition, price is greater than marginal cost. This is an indication that
A)both industries result in product variety.
B)both industries make economic profits in the long run.
C)there are barriers to entry in both types of industries.
D)marginal costs must be very low in both types of industries.
E)both industries result in deadweight loss.

Question

Quizplus · Accepted Answer

In both monopoly and monopolistic competition, the price being greater than marginal cost indicates that the firms have some degree of market power, allowing them to set prices above marginal costs. This situation typically leads to an inefficient allocation of resources, known as deadweight loss, because not all consumers who value the product at a price above its cost are able to purchase it.

In Monopoly and Monopolistic Competition, Price Is Greater Than Marginal