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Author Question: Is it true that in the long run, a monopolistically competitive firm has market power but earns no ... (Read 46 times)

stock

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on: Jul 1, 2018
Is it true that in the long run, a monopolistically competitive firm has market power but earns no profit? Explain.
 
  What will be an ideal response?

Question 2

The marginal expenditure curve of a monopsonist
 
  A) lies above the market supply curve.
  B) lies between the market demand curve and the market supply curve.
  C) lies parallel to the market demand curve.
  D) lies below the market supply curve.
Microeconomics ¦ Perloff ¦ 8th Edition
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gcook

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Reply #1 on: Jul 1, 2018
Answer to Question 1

As strange as it sounds, yes. The firm earns zero profit because p = AC. The firm has market power because p > MC. One way to explain this is that the firm has market power to set price, but has no power to prevent entry.

Answer to Question 2

A


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