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Let’s compare monopolistic competition with perfect competition. Select the true statement regarding profits for competitive firms.

They can make short run profits, and zero economic profits in the long run.

They make negative economic profits in the long run.

They make a normal economic profit in the short run.

They make positive long run profits.

Let’s compare monopolistic competition with perfect competition. Select the true statement regarding profits for monopolistically competitive firms.

They can make short run profits, and zero economic profits in the long run.

They make a normal economic profit in the short run.

They make a negative economic profit in the long run.

They make positive long run profits.

Is there a difference in profits between competition and monopolistic competition and, if so, what accounts for it?

Yes, there is a difference in long run profits between the two types of firms because product differentiation gives monopolistically competitive firms the ability to charge a higher price.

No, there is no difference in profits between the two types of firms.

Yes, there is a difference in short run profits between the two types of firms because product differentiation gives monopolistically competitive firms the ability to charge a higher price.

Yes, there is a difference in short run profits between the two types of firms because product differentiation gives competitive firms the ability to charge a higher price.

Examine the figure. What are the differences between monopolistic competition and competition?

A competitive firm produces less than the monopolistically competitive firm.

A competitive firm charges a higher price than the monopolistically competitive firm.

A competitive firm faces a downward sloping demand curve compared to the monopolistically competitive firm.

P = AC for a monopolistically competitive firm and P = minAC for a competitive firm in the long run.

In Figure 17.2, the one specific point that represents the price we pay for product differentiation is:

P > MC and P = AC under monopolistic competition.

P = minAC under competition.

P = MC under monopolistic competition.

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