If a monopolistically competitive firm is making positive economic profits, we would expect
A. entry of other firms.
B. the firm to continue making the positive economic profits.
C. the firm to hire more labor.
D. the firm to expand market share and the industry to move toward an oligopoly structure.
Answer: A
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Assume there is an increase in the number of consumers in the market for a good sold by perfectly competitive firms that are initially producing the profit-maximizing level of output. For the individual firm, this would result in:
A) a decrease in both price and the profit-maximizing quantity of output. B) a decrease in price and increase in the profit-maximizing quantity of output. C) an increase in both price and the profit-maximizing quantity of output. D) an increase in price and decrease in profit-maximizing quantity of output.
The excess burden of a tax is:
a. the amount by which the price of a good increases. b. the loss of consumer and producer surplus that is not transferred to the government. c. the amount by which a person's after-tax income decreases as a result of the new tax. d. the welfare costs to firms forced to leave the market due to an inward shift of the demand curve.