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Homework answers / question archive / For each of the following characteristics, indicate whether it describes a perfectly competitive firm, a monopolistically competitive firm, both, or neither
For each of the following characteristics, indicate whether it describes a perfectly competitive firm, a monopolistically competitive firm, both, or neither. (Note: If the characteristic describes neither, leave the entire row unchecked.)
| Characteristic | Perfectly Competitive | Monopolistically Competitive |
|---|---|---|
| Sells a product differentiated from that of its competitors | ||
| Has marginal revenue less than price | ||
| Earns economic profit in the long run | ||
| Produces at the minimum of average total cost in the long run | ||
| Equates marginal revenue and marginal cost | ||
| Charges a price above marginal cost |
| Characteristic | Perfectly Competitive | Monopolistically Competitive |
|---|---|---|
| Sells a product differentiated from that of its competitors | Monopolistically Competitive. Products are differentiated through various methods like material used, design, and trademarks. | |
| Has marginal revenue less than price | Monopolistically Competitive. Firms in this market must reduce price to sell one additional unit of product. | |
| Earns economic profit in the long run | ||
| Produces at the minimum of average total cost in the long run | perfect competition. Indicates that this market is productive efficient | |
| Equates marginal revenue and marginal cost | Perfectly Competitive. It is an indication of allocative efficiency | |
| Charges a price above marginal cost | Monopolistically Competitive. It is an indication of allocative inefficiency. |
