Asked by Krishna Sriharsha Maramganti on May 25, 2024
Verified
The monopolistically competitive seller maximizes profits by equating price and marginal cost.
Monopolistically Competitive
This describes a market structure where many firms sell products that are similar but not identical, allowing for some degree of market power.
Marginal Cost
The added cost incurred from producing one more unit of a product or service, essentially the derivative of the total cost with respect to quantity.
- Gain insight into the critical role of product differentiation in shaping market frameworks and enhancing competitiveness.
Verified Answer
AS
Angelica SeelalMay 30, 2024
Final Answer :
False
Explanation :
In a monopolistically competitive market, the seller chooses a price that is higher than marginal cost in order to earn economic profits in the short run. However, in the long run, other firms can enter the market, causing the demand for the seller's product to decrease, and forcing the seller to lower their price and reduce profits. Ultimately, in the long run, the seller in a monopolistically competitive market earns only normal profits, where total revenue equals total cost, including opportunity costs.
Learning Objectives
- Gain insight into the critical role of product differentiation in shaping market frameworks and enhancing competitiveness.