In monopolistic competition as well as in monopoly,
A)price exceeds marginal revenue for each firm.
B)profit is zero in a long-run equilibrium for each firm.
C)entry and exit by firms are unrestricted.
D)there are at most a few firms in each market.

Question

Quizplus · Accepted Answer

In both monopolistic competition and monopoly, the firms have some power to set their own prices and face a downward sloping demand curve. This means that in order to sell more units, they must lower the price, which leads to a lower marginal revenue for each unit sold. As a result, the price charged by the firm is always higher than the marginal revenue earned from each unit sold, leading to a situation where price exceeds marginal revenue for each firm. Option B is incorrect as firms in monopolistic competition can earn profits in the long run if they are able to differentiate their products successfully. Option C is also incorrect, as entry and exit barriers may exist in both monopolistic competition and monopoly. Option D is incorrect as monopolistic competition can have many firms operating in the same market, while monopoly has only one.

In Monopolistic Competition as Well as in Monopoly