The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Wal-Mart created a competitive advantage with its inventory system to reduce the ratio of cost of goods sold to sales, expecting:
A)to enjoy huge economic profits forever.
B)that its rivals will never imitate their strategy and it will continue to enjoy positive economic profits.
C)that its rivals will immediately do the same thing and it will end up earning zero profits.
D)to enjoy economic profits for a few years before its rivals caught up.
E)that it will at least be able to cover its fixed costs.

Question

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
  MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Wal-Mart created a competitive advantage with its inventory system to reduce the ratio of cost of goods sold to sales, expecting:
A)to enjoy huge economic profits forever. 
B)that its rivals will never imitate their strategy and it will continue to enjoy positive economic profits. 
C)that its rivals will immediately do the same thing and it will end up earning zero profits. 
D)to enjoy economic profits for a few years before its rivals caught up. 
E)that it will at least be able to cover its fixed costs.

Quizplus · Accepted Answer

Wal-Mart's inventory system created a temporary competitive advantage, which allowed them to enjoy economic profits for a few years before its rivals caught up. This is because Wal-Mart's rivals could imitate their strategy and lower their own cost of goods sold to sales ratio, leading to a decrease in economic profits for Wal-Mart. It is unlikely that Wal-Mart expected to enjoy huge economic profits forever or that its rivals will never imitate their strategy and it will continue to enjoy positive economic profits. It is also unlikely that Wal-Mart expected to immediately earn zero profits or only cover its fixed costs.

The Figure Given Below Shows the Revenue and Cost Curves