Econ Chapter 16

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In a monopolistic competition, firms set price

above marginal cost since each firm is a price setter
Monopolistic competition differs from perfect competition because in a monopolistic competition markets each of the sellers offers a

somewhat different product
Free entry and exit of firms in monopolistic competition market guarantees that both

economic profits and economic losses disappear in the long run
In the long run, monopolistic competition firms produces a quantity that's

less efficient scale
Monopolistic competition firms have excess capacity. To maximize profits firms will

maintain the excess capacity
Advertising that uses celebrity endoresements is most likely intended to

provide a signal of product quality
If a firm in a monopolistic competitive market successfully uses advertising to decrease elasticity of demand for its product

the firm will be able to increase its mark up over marginal cost
When does a firm earn zero economic profit

Price = Average Total Cost
Loss Bearing Firm

ATC is ABOVE the demand curve (price to ATC then make a box)
Profit Bearing Firm

ATC is BELOW the demand curve (price to ATC then make a box)