Question

For each of the following characteristics, check which types of firm it describes: a monopoly firm, a monopolistically competitive firm, both, or neither.

A. Faces the entry of new firms selling similar products.
B. Produces at the minimum average total cost in the long run.
C. Equates marginal revenue and marginal cost.
D. Has marginal revenue less than price.
E. Faces a horizontal demand curve.
F. Earns economic profit in the long run.

Answer 1

A. Faces the entry of new firms selling similar products.

A firm in monopolistic competition faces the entry of new firms selling similar products

B. Produces at the minimum average total cost in the long run.

A firm in perfect competition produces at the minimum average total cost in the long run

C. Equates marginal revenue and marginal cost.

Both a firm in monopolistic competition and a firm in perfect competition equate marginal revenue and marginal cost

D. Has marginal revenue less than price.

A firm in monopolistic competition has marginal revenue less than price

E. Faces a horizontal demand curve.

monopolistic competition firm must be operating on the elastic portion of its demand curve

F. Earns economic profit in the long run.

A monopoly firm earns economic profit in the long run