A main difference between a monopolistic firm and a competit

A main difference between a monopolistic firm and a competitive firm is that

A) we assume the monopolistic firm maximizes profits but the competitive firm does not.

B) the monopolistic firm uses MR=MC to maximize its profits but the competitive firm does not follow the MR=MC rule, instead it sets P=MC.

C) the monopolistic firm’s MC is always increasing, whereas the competitive firm usually has a constant MC.

D) the monopolistic firm always makes positive profits, whereas the competitive firm always makes zero profits.

E) the monopolistic firm faces a downward sloping demand curve for its output, whereas the competitive firm faces a horizontal demand curve for its output.

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Which one of the following statements about a firm’s cost curves is true?

A. The average variable cost curve only includes explicit costs.

B. Increases in input prices for variable factors of production will shift the firm’s marginal cost curve up and also shift the firm’s total variable cost curve up.

C. Fixed costs only include implicit costs.

D. An increase in the price of a fixed factor of production will shift all of the firm’s cost curves up.

E. A competitive firm’s short run supply curve is always identical at all points to its short run marginal cost curve.

Solution

1. E) the monopolistic firm faces a downward sloping demand curve for its output, whereas the competitive firm faces a horizontal demand curve for its output.

2. B. Increases in input prices for variable factors of production will shift the firm’s marginal cost curve up and also shift the firm’s total variable cost curve up.