Which of the following is true of profit-maximizing firms in the long run?

Question

a. in perfect competition, firms produce an output at which price is less than marginal cost

b. in perfect competition, forms produce an output at which price is greater than marginal cost

c. in monopolistic competition, firms produce less than the output at which average total cost is minimized

d. in monopolistic competition, forms produce more than the output at which average total cost is minimized

Answer 1

I don't know,,but i'd guess  B

Answer 2

The answer is c. It can't be a or b because in the long run, perfectly competitive firms will produce at a point where price=marginal cost (therefore earning zero economic profit).

It is not d because in monopolistic competition firms have market power (they can influence the price, usually by restricting output) so they will tend to produce less.

Besides, if they are profit maximizing firms, they will be minimizing costs, so it makes no sense to produce more output at a higher average cost than the level of output that minimizes average cost.

Answer 3

The correct answer is:

d. in monopolistic competition, firms produce more than the output at which average total cost is minimized