Question

Which of the following features is common to both perfect competition and monopolistic competition? a. An...

Which of the following features is common to both perfect competition and monopolistic competition? a. An individual firm faces a horizontal demand curve. b. New firms are free to enter the market in the long-run. c. Each firm produces a perfectly homogeneous product. d. The firms earn positive economic profit in the long run.

Homework Answers

Answer #1

a. An individual firm faces a horizontal demand curve.- In PC, firms face a horizontal demand curve and have no pricing power, while in MC firms face a downward sloping demand curve and have some pricing power


b. New firms are free to enter the market in the long-run.- This is true for both PC and MC

c. Each firm produces a perfectly homogeneous product- In PC firms produce homogeneous products, while in Monopolistic competition they produce differentiated products

d. The firms earn positive economic profit in the long run- In the long run in both cases, firm earn normal profits, and no economic profits.

Hence, the correct Option is (b)
Let me know if any queries.

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