Figure: Comparing Long-Run Equilibriums (Figure: Comparing Long-Run Equilibriums) In the figure Comparing Long-Run Equilibriums, which of the following statements is false?
A)The major difference between firms in the market structure shown in panel a and panel b is that firms in panel a cannot have excess profits in the long run, but those in panel b can have excess profits in the long run.
B)Panel a and panel b show markets in which firms are covering all of their implicit and explicit costs.
C)Firms in the market shown in panel a produce identical products, whereas firms in the market shown in panel b produce similar products.
D)Panel a and the panel b show markets that have many firms.

Question

Figure: Comparing Long-Run Equilibriums  (Figure: Comparing Long-Run Equilibriums) In the figure Comparing Long-Run Equilibriums, which of the following statements is false?
A)The major difference between firms in the market structure shown in panel a and panel b is that firms in panel a cannot have excess profits in the long run, but those in panel b can have excess profits in the long run. 
B)Panel a and panel b show markets in which firms are covering all of their implicit and explicit costs. 
C)Firms in the market shown in panel a produce identical products, whereas firms in the market shown in panel b produce similar products. 
D)Panel a and the panel b show markets that have many firms.

Quizplus · Accepted Answer

The major difference between the firms in the market structure shown in panel a and panel b is not whether they can have excess profits in the long run, as both can have excess profits in the long run. The major difference is in the degree of product differentiation and the level of market power. Firms in panel a produce identical products and are in a perfectly competitive market, while firms in panel b produce similar but differentiated products and are in a monopolistically competitive market.

Figure: Comparing Long-Run Equilibriums (Figure: Comparing Long-Run Equilibriums) in the Figure