Explain why a monopolistically competitive firm would not want to reduce its price all the way to its minimum average total cost even though doing so would allow it to increase sales?
What will be an ideal response?
Maximizing sales is not the goal of any firm but rather profit maximization. Since the monopolistically competitive firm faces a down-sloping demand and marginal revenue curves its decision to sell and produce at the point where marginal revenue equals to marginal cost is likely to occur at a point higher than its minimum average total cost. To reduce price any further would result in a reduction in profits or an increase in losses.
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If the minimum wage is set
A) above the equilibrium wage rate, it will create unemployment. B) equal to the equilibrium wage rate, it will create a shortage of labor. C) below the equilibrium wage rate, it will create unemployment. D) equal to the equilibrium wage rate, it will create a surplus of labor. E) below the equilibrium wage rate, it will create a shortage of labor.
Low wages and poor working conditions in many U.S. trade partners
A) prove that the gains-from-trade arguments of the Ricardian model are false. B) may be a fact of life, but economists don't care. C) are facts emphasized by U.S. labor in its contract negotiations. D) prove that the gains-from-trade arguments of the Ricardian model are true. E) prove that international trade is exploitative.