Question

25. __________ Which of the following is true of long‐run equilibrium price in a

monopolistically competitive market?

A) It is equal to average total cost.

B) It is less than average total cost.

C) It is higher than average total cost.

D) It is lower than marginal cost.

27. __________ Total social surplus is maximized in a(n) ________.

A) monopolistically competitive market

B) perfectly competitive market

C) oligopoly

D) monopoly

28. __________ A firm is said to have market power if it charges a price ________ of

production.

A) higher than the marginal cost

B) lower than the marginal cost

C) equal to the marginal cost

D) equal to the average fixed cost

29. __________ Which of the following firms is likely to have the highest market

power?

A) A perfectly competitive firm

B) A monopolistic competitor

C) A monopoly

D) An oligopoly with homogeneous products

30. __________ The market for tea in Richland is perfectly competitive, while the

market for candy bars is monopolistically competitive. Which market is likely to have

excess capacity and why? Explain your answer with the help of suitable diagrams.

Answer 1

Q25) The answer is (a) In a monopolistically competitive market, in the long run firms will produce at a point where Marginal revenue is equal to the marginal cost and at this point price = average total cost so that there is no excess profits

Q27) The answer is (b) as the total surplus is maximized when the market is competitive as it involves the maximium amount of quantity and thus consumer surplus + producer surplus is maximized

Q28) The answer is (a) as firms with market power produce at a point where MR = MC and thus P > MC (since MR falls faster than the demand curve)

Q29) The answer is (c) as monopoly is the sole producer in the market and thus enjoys the highest market power as it can decide to anything without worrying about any competition.