Question

Which of the following statements are true? Explain why. (i) A firm in a monopolistically competitive...

Which of the following statements are true? Explain why.

(i) A firm in a monopolistically competitive market sets price equal to average cost

in the short run.

(ii) A firm in a monopolistic market sets price equal to average cost in the long run.

(iii) A firm in a monopolistically competitive market chooses sets price equal to

marginal cost in the long run.

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Homework Answers

Answer #1

ANSWER-

(ii) A firm in a monopolistic market sets price equal to average cost in the long run.

Explanation-

In the long run, a monopolistically competitive firm's price equals its average total cost but not its marginal cost.

OTHER OPTION -

Apart from 2 options and does not tell the relationship between price and average cost in the long run, only this situation applies in the monopoly market.

In perfect competition market price equal to its marginal cost (P = MC).

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