Because a monopolistically competitive firm has some market power, at break-even the price of its good exceeds its: A. average revenue B. total cost C. average cost D. marginal cost
Question
Because a monopolistically competitive firm has some market power, at break-even the price of its good exceeds its: A. average revenue B. total cost C. average cost D. marginal cost
Solution
The answer is D. Marginal Cost.
Here's why:
A monopolistically competitive firm has some market power, which means it can influence the price of its goods to some extent. This is unlike a perfectly competitive firm, which is a price taker.
At the break-even point, a firm is covering all its costs, but is not making any profit. This means that the price of its good is equal to its average total cost (which includes both variable and fixed costs).
However, because the firm has some market power, it can set its price above the marginal cost. The marginal cost is the cost of producing one more unit of a good. In a perfectly competitive market, firms set price equal to marginal cost. But in a monopolistically competitive market, firms set price above marginal cost.
Therefore, at break-even, the price of the monopolistically competitive firm's good exceeds its marginal cost.
Similar Questions
What is the condition for a firm to break-even in a perfectly competitive market?Price equals average variable costPrice equals marginal costPrice equals average total costPrice equals marginal revenue
When a profit-maximising firm in a monopolistically competitive market is producing the break-even quantity: A. it will be earning economic profits B. its demand curve will be tangent to its average total cost curve C. its demand curve can be above, below or be tangent to its average total cost curve D. its marginal revenue will exceed marginal cost
In a perfectly competitive market, what happens when the average total cost is greater than the market price?The firm shuts down immediatelyThe firm incurs an economic lossThe firm breaks evenThe firm earns an economic profit
How does a firm in a perfectly competitive market maximize profit in the short run? By producing where marginal cost equals average total cost By producing where price equals average total cost By producing where marginal cost equals marginal revenue By producing where price equals marginal cost
In the long run,:Multiple choice question.total cost exceeds total revenue.total revenue exceeds total cost.firms earn a normal profit.firms have incentive to enter the market.
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