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Compared to competitive firms, firms with market power are considered: a
Compared to competitive firms, firms with market power are considered:
a. technologically superior since they generate new inventions more efficiently than competitive firms.
b. unstable in the long run since they will always earn long-run losses even if they earn short-run profits.
c. inefficient since they have lower output and set a higher price.
d. inferior since they always earn losses.
Expert Solution
The correct answer is c. inefficient since they have lower output and set a higher price.
Market structures such as monopolies that give power to firms provide a lower output at a higher price than markets such as perfect competition that are competitive. This lower output and higher price reduce the welfare to society and cause deadweight loss.
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