Why is it true that under monopolistic competition the price is above marginal revenue while under pure competition price is equal to marginal revenue?
What will be an ideal response?
The reason is that under pure competition the firm can sell as much as output as it desires at the going market price. Therefore total revenue will always increase by the amount of the price with each new additional unit sold. However, under monopolistic competition the firm must reduce price to sell more output. Therefore total revenue still increases but by less than the price because the price concession is not just made on additional units but on all previous units as well.
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A firm's accounting profit is called a normal profit when its:
a. accounting profit is equal to zero. b. economic profit is equal to zero. c. opportunity cost is equal to zero. d. average cost is minimum. e. economic profit is equal to accounting profit.