Question

1) Agree or disagree and explain your answer. "The typical firm in a monopolistic competitive market earns above normal profits because it sells a differentiated product and only produces up to the point where marginal revenue equals marginal cost.

2) Where formal cartels are illegal, what techniques can firms use to attempt to prevent “price wars” from breaking out and to maintain a price level in the market, which approximates the level that a monopolist would charge?

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1) Since monopolistically competitive firms have market power, they will produce less and charge more than a firm would under perfect competition. This causes deadweight loss for society...

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