3. In the long run, how is price related to marginal cost in both perfect competition and in monopolistic competition?
1) The long-run price is driven to marginal cost in both competitive markets and markets that are monopolistically competitive.
2 )Both markets can charge more than the marginal cost in the long run because products are differentiated in both markets.
3) Products are identical in perfectly competitive markets, so a firm must charge less than the marginal cost in order to differentiate itself. This is not true in monopolistically competitive markets where firms can charge more than marginal cost.
4) Because monopolistically competitive firms have market power, they set a price higher than marginal cost, while competitive firms cannot.
4. Titleist has an advertising slogan is "The #1 ball in golf" Consumers can also buy generic golf balls. The manufacturers of generic golf balls do not engage in any advertising. Assume that the average total cost of producing Titleist and generic golf balls is the same.
Which producer has a stronger incentive to maintain quality control in the production of golf balls?
A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.
B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.
C. Monopolies can earn profits in the long run while perfectly competitive firms break even.
D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.
40. Which of the following statements is not correct?
A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.
B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.
C. Only competitive firms produce the welfare-maximizing level of output.
D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.
43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that
A. the profits of the firm are negative.
B. firms are likely to leave this market in the long run.
