Which two of the following statements are true?

(A) A simple monopoly firm always earns supernormal profit.

(B) Sweezy's kinked demand curve model explains price rigidity in oligopoly.

(C) A perfectly competitive firm is a price-taker.

(D) Firms under monopolistic competition earn only normal profits.

Choose the correct option from those below:​

Correct option is C

· Statement (B) is correct:
· Sweezy’s Kinked Demand Curve Model explains price rigidity in oligopolistic markets.
· Firms in an oligopoly do not change prices frequently because competitors may follow price decreases but not price increases.
· Statement (C) is correct:
· In perfect competition, firms are price takers.
· They cannot influence market prices and must accept the prevailing price determined by market supply and demand.
Information Booster
· Price Rigidity in Oligopoly:
· Firms fear losing customers if they raise prices.
· They fear a price war if they lower prices.
· This leads to sticky prices in an oligopoly.
· Perfect Competition Characteristics:
· Large number of buyers and sellers.
· Homogeneous products (no product differentiation).
· No barriers to entry or exit.
Additional Knowledge
· Why are (A) and (D) incorrect?
· (A) is incorrect: A monopoly firm does not always earn supernormal profits; profits depend on cost structure, demand, and regulation.
(D) is incorrect: Firms in monopolistic competition can earn supernormal profits in the short run but normal profits in the long run due to new market entrants.