Asksia AI LOGO

Sia

Question
Microeconomics
Posted about 2 months ago

Dinosaur Inn is a hotel that differentiates itself from other hotels in a market with many buyers by offering rooms with different dinosaur themes, such as the T-Rex Relax room and the Bambiraptor Suite.

Which of the following will be true for the Dinosaur Inn when this industry is in long-run equilibrium?

Choose 1 answer:
(A) Price exceeds marginal revenue, there are positive economic profits, and it has excess capacity.

B Price is less than marginal revenue, there are positive economic profits, and there is no excess capacity.
(C) Price exceeds marginal cost, there are no economic profits, and it has excess capacity.
(D) Price is less than marginal revenue, there are negative economic profits, and there is no excess capacity.
(E) Price equals marginal cost, there are negative economic profits, and it has excess capacity
Sign in to unlock the answer
Answer from Sia
Posted about 2 months ago
Solution
a
Market Structure: Dinosaur Inn operates in a monopolistic competition market structure, characterized by many firms offering differentiated products
b
Long-Run Equilibrium: In the long run, firms in monopolistic competition earn zero economic profits due to the entry and exit of firms
c
Price and Marginal Cost: In monopolistic competition, the price (PP) exceeds marginal cost (MCMC) because firms have some market power
d
Excess Capacity: Firms in monopolistic competition typically have excess capacity, meaning they do not produce at the minimum point of their average total cost (ATC) curve
Answer
(C) Price exceeds marginal cost, there are no economic profits, and it has excess capacity.
Key Concept
Monopolistic Competition Long-Run Equilibrium
Explanation
In the long run, firms in monopolistic competition earn zero economic profits due to the entry and exit of firms. The price exceeds marginal cost because firms have some market power, and they typically have excess capacity.

Not the question you are looking for? Ask here!

Enter question by text

Enter question by image

Upgrade to Asksia Pro

Join a AskSia's Pro Plan, and get 24/7 AI tutoring for your reviews, assignments, quizzes and exam preps.

Unlimited chat query usages
Strong algorithms that better know you
Early access to new release features
Study Other Question