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Author Question: Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury ... (Read 196 times)

Mollykgkg

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on: Jun 29, 2018
Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks, and compact cars. What fundamental economic question are they addressing by making this range of products?
 
  A) Who to produce automobiles for? B) How to produce goods that consumers want?
  C) What to produce? D) Why produce a variety of automobiles?

Question 2

Monopolistically competitive firms earn zero economic profit in the long run as do perfectly competitive firms. Does this mean that total surplus is maximized in a monopolistically competitive market?
 
  What will be an ideal response?
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fatboyy09

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Reply #1 on: Jun 29, 2018
Answer to Question 1

C

Answer to Question 2

No, total surplus is not maximized in a monopolistically competitive market. A monopolistic competitor has a certain degree of market power. The key is that there are potential sales that would increase total surplus that are not realized because the monopolistically competitive firm restricts quantity to keep price higher. So even though price is equal to average total cost, it is not equal to marginal cost.


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Mollykgkg

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Reply #2 on: Jun 29, 2018
Thank you :)


fatboyy09

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Reply #3 on: Jun 29, 2018
Happy to help you


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