Question

Use the following two statements about monopolistic competition to answer this question. I.In the long run, the price of the good will equal the minimum of the average cost. II.In the short run, firms may earn a profit.2)A)I is false, and II is true.B)I and II are false.C)I and II are true.D)I is true, and II is false.3

Answer 1

Answer:

A) I is false, and II is true

• II. In the short run, firms may earn a profit.

Explanation:

Firms that compete in a monopolistic competition market will have $0 economic profit in the long run, but they can make an economic profit on the short run due to a sudden change in the demand or the supply. Economic profit is not the same as accounting profit, a firm may have $0 economic profit and still be making a huge accounting profit.

In a monopolistic competition, in the long run, the price of the good (marginal revenue) will equal the marginal cost.