Question

The demand curve facing a firm will be more elastic,

a.	the fewer the number of competing firms
b.	the more differentiated the product
c.	the more substitutes there are for its product
d.	the greater the firm's ability to control price

Because of easy entry, monopolistically competitive firms will

            a.         produce at the lowest ATC.

            b.         charge a price equal to MC.

            c.         earn an economic profit equal to zero in the long run.

            d.         take advantage of all economies of scale

A monopolistically competitive firm is producing at an output level where MR is greater than MC. This firm should ____________ quantity and ______________ price to increase profit or reduce losses.

Answer 1

1.
c.the more substitutes there are for its product
As the number of substitutes increases the more the price elasticity of the demand curve.
2.
c. earn an economic profit in the long run
Since there are a large number of sellers and there are no barriers to entry or exit monopolistically competitive firms will earn zero profit in the long run.
3.
A monopolistically competitive firm is producing at an output level where MR is greater than MC. This firm should increase the quantity and decrease price to increase profit or reduce losses.