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Price Elasticity of Demand

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Questions and Answers

Which of the following is a characteristic of the long-run equilibrium in a monopolistically competitive market?

Price is determined by the government

Price equals average total cost (correct)

Price equals marginal cost

Price exceeds average total cost

What is one difference between monopolistic competition and perfect competition?

Price is determined by the government

Excess capacity (correct)

Price equals marginal cost

Price equals average total cost

Why does price exceed marginal cost in a monopolistically competitive market?

Due to government regulations

Due to firms manipulating prices

Due to profit maximization (correct)

Due to free entry and exit

What is one critique of advertising?

It manipulates people's tastes Signup and view all the answers

How do defenders of advertising argue it benefits customers?

By providing information Signup and view all the answers

What is branding?

The process of creating a business identity Signup and view all the answers

What is one effect of excess capacity in monopolistic competition?

Higher prices for consumers Signup and view all the answers

Why does price equal average total cost in the long-run equilibrium of a monopolistically competitive market?

Due to free entry and exit Signup and view all the answers

What is one argument against the ability of policymakers to correct inefficiencies in monopolistic competition?

Limited ability Signup and view all the answers

What is one noteworthy difference between monopolistic competition and perfect competition?

Excess capacity Signup and view all the answers