Question

For each of the following characteristics, state whether they describe a company with perfect competition, one with monopolistic competition, both, or neither.

1. Sell a differentiated product from your competitors.

2. Have a marginal revenue less than the price.

3. Obtain long-term financial benefits.

4. Produce at the minimum of the long-term average total cost.

5. Match marginal revenue to marginal cost.

6. Set a price higher than marginal cost.

Answer 1

A perfect comeptitive firm is a price taker so it sets P=MC=MR for profit maximization and sells a good which is a perfect substitute

A monopolistic competitive firm is a price maker so it sets MC=MR for profit maximization where price is greater than MR and MC and also sells goods which are differentiated

Both of them produce at P=ATC in the long run so that their economic profit is ero in the long run.

1. Sell a differentiated product from your competitors.Monopolistic competition

2. Have a marginal revenue less than the price.-Monopolistic competition

3. Obtain long-term financial benefits.-Neither

4. Produce at the minimum of the long-term average total cost.-Both

5. Match marginal revenue to marginal cost.-Both

6. Set a price higher than marginal cost.-monopolistic comeptition