Monopolistic competitors do not have the ________ demand of perfect competition. As a result, firms will never produce at ________ average total cost.

Question

BlackTom AI · Accepted Answer

To analyze the statement, I’ll assess what each part implies about the demand faced by monopolistic competitors and the resulting production at ATC. 
Option a: 'relatively elastic; maximum' — While monopolistic competitors do have demand that is more elastic than a monopoly but less than perfect competition, it is not described as 'relatively elastic' in the standard contrast with perfect competition, which typically emphasizes a non-perfectly elastic (downward-sloping) demand. Also, producing at 'maximum' ATC is not consistent with the typical outcome in monopolistic competition, where firms tend to operate with excess capacity and not at the ATC minimum. This makes this option biologically unlikely. 
Option b: 'perfectly elastic; minimum' — 'Perfectly elastic' demand is the hallmark of perfect competition, not monopolistic competition; monopolistic competitors face downward-sloping demand due to product differentiation. The second part, 'minimum' ATC, would imply productive efficiency typical of perfect competition, which does not hold in monopolistic competition because firms have excess capacity and do not operate at the ATC minimum. However, the pairing here matches the standard comparison: mon. comp. lack perfectly elastic demand and do not produce at the minimum ATC, so the statement structure aligns with the textbook contrast. 
Option c: 'relatively elastic; maximum' — The demand for monopolistic competitors is not characterized as 'relatively elastic' in the precise sense used for this comparison; it’s downward sloping due to product differentiation. Producing at 'maximum' ATC is also inconsistent with the typical outcome of excess capacity and underutilization. This option misstates both the nature of demand and the ATC outcome. 
Option d: 'relatively elastic; minimum' — Again, the demand is not described as 'relatively elastic' in the standard framework when contrasting with perfect competition, and the 'minimum' ATC claim contradicts the known result that monopolistic competitors do not produce at the ATC minimum because of excess capacity. This makes the option incorrect. 
In summary, the core ideas are: monopolistic competition features downward-sloping demand instead of perfectly elastic demand, and firms do not produce at the ATC minimum due to excess capacity. The combination of those two facts is not accurately captured by options a, c, or d, and option b presents the conventional contrast, even though it would technically imply a mismatch about the exact demand characterization, the structure of the statement aligns with the standard comparison that monopolistic competitors lack perfectly elastic demand and do not operate at minimum ATC.

MCD2020 - T1 - 2025 Lecture Quiz 9 - Monopolistic Competition and Oligopoly

Monopolistic competitors do not have the demand of perfect competition. As a result, firms will never produce at average total cost.

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