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

Question

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

Accepted Answer

∻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 ($P$) exceeds marginal cost ($MC$) 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. ⚹◊What factors determine the long-run equilibrium for firms in a monopolistic competition market like Dinosaur Inn?⍭ Generate me a similar question◊

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