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JAMB Economics 1988 Question 24

Question 24

Market Structures

In the short run, the monopolistic competitor

  1. A.always makes profit
  2. B.always incurs a loss
  3. C.always breaks-even
  4. D.may close down.
Show the answer and explanation

Answer: D (may close down.)

Explanation

In the short run a monopolistic competitor can make supernormal profit, normal profit or a loss; none of these is certain. If price cannot cover average variable cost it may close down, so D is the only statement that is always true.