Hi all, here is another one When the products offered by firms are differentiated each firm in the industry A. will face a demand curve that slopes downward to the right. B. will face a supply curve that slopes downward to the right. C. will face a perfectly elastic demand curve. D. can earn economic profit. A is obviously the correct answer, but I was wondering why D is regarded as unacceptable ? differenciation should bring econ profit, just as does technologic innovation ?? I am wrong ?
One of the many situations where you have to just go with the BEST answer.
Hi D’artgnan, D is the wring answer. If the firms are differentiated, they do not earn economic profit in the long run. As soon as P>ATC, more firms enter into the industry till the point ATC becomes equal to P and economic profits are wiped out. Yes. they do earn accounting profits (But not economic).
Right, economic profits are over and above MC=MB.
sachin123 Wrote: ------------------------------------------------------- > Hi D’artgnan, > > D is the wring answer. If the firms are > differentiated, they do not earn economic profit > in the long run. As soon as P>ATC, more firms > enter into the industry till the point ATC becomes > equal to P and economic profits are wiped out. > Yes. they do earn accounting profits (But not > economic). But this question does not specify short/long-run. The CFAI text clearly points out that firms in monopolistic competition can earn a profit in the short run. D’artgnan, what was the source of this question?
Good point whodey.
2007 stalla, I’m drilling their Qbank too … (I’m scoring in the 60s and getting really worried) the most logical answer is A (also confirmed by stalla) it is true that the time frame makes the whole difference Thank you all !!