In both a monopolistically competitive market and a pure monopoly market, firms
A) can make long-run profits.
B) set price greater than marginal cost.
C) are protected by entry barriers.
D) advertise extensively.
Answer: B
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A government subsidy
A) is a policy that can be used to help eliminate the deadweight loss from an external cost. B) can help achieve an efficient amount of output when the good has an external benefit. C) increases consumers' marginal benefit from the good. D) Both answers A and C are correct. E) Both answers B and C are correct.
What is the economic reasoning behind the proposal to legalize drugs?
a. Legal drugs will greatly increase the supply, which will reduce the price Americans pay to foreign producers of the drugs. b. All forms of government restrictions on behavior are immoral, and ought to be removed. c. Legal drugs will be much cheaper than illegal drugs, which will reduce incentive for crime to obtain money for drugs and to protect drug "businesses." d. Legal drugs will be more expensive than illegal drugs, and the market system will encourage more production, thus lowering the price. e. Dealing with supply is always easier than dealing with demand, and legalization accomplishes that.