Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale. If this law were to pass and be enforced, we would expect that monopolistically competitive firms would
A)see their profits increase.
B)break even.
C)lose money.
D)not really be affected by the law.

Question

Quizplus · Accepted Answer

Monopolistically competitive firms typically produce at a quantity less than the efficient scale in order to differentiate their products and gain market power. Requiring them to operate at the efficient scale would mean they would have to produce more, which would increase their costs and likely result in losses. Therefore, monopolistically competitive firms would lose money if this law were to be enforced.

Senator Hubris Wants to Pass a Law That Would Require