Monopolistically competitive firms can earn above-normal economic profits in the short run. (a) In a few sentences, explain what will happen in the long run that will prevent monopolistically competitive firms from
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- The graph below shows the demand curve for a perfectly competitive firm. Suppose that firms in this industry discover a way to differentiate their products. Using the line drawing tool, show how the firm's demand curve would be likely to change. Label the new demand curve 'd,'. Carefully follow the instructions above, and only draw the required objects. Since the demand curve is downward sloping, the monopolistically competitive firm will set a price OA. that is less than marginal cost. B. that is unrelated to marginal cost. OC. that is equal to marginal cost. D. that is greater than marginal cost. Price 10- Q Q Output 10(a) Explain why a monopolistically competitive firm’s profit maximization occurs at the output level when marginal revenue for the firm is equal to its marginal cost. Use a graph to prove your point for a monopolistically competitive firm. (b) What can a monopolistically competitive firm do to try to maintain economic profits?3. You are hired as a consultant to a monopolistically competitive firm. The firm reports the following information about its price, marginal cost, and average total cost. Can the firm possibly be maximizing profit? If not, what should it do to increase profit? If the firm is maximizing profit, is the market in a long-run equilibrium? If not, what will happen to restore long-run equilibrium? a. P < MC, P > ATC b. P > MC, P < ATC c. P = MC, P > ATC d. P > MC, P = ATC
- a. b. C. d. Price panel a panel b panel c panel di Price (a) (c) MA MC MR ATC Quantity MC ATC D Quantity Price Price (b) MR (d) MC Quantity MC مما ATC Refer to Figure 3. Assume a monopolistic competitive environment: From the 4 graphs depicted, which one of them represents a short-run equilibrium that encourages the entry of other firms? ATC Quantity DWhat are the most important differences between perfectly competitive markets and monopolistically competitive markets? Give two examples of products sold in perfectly competitive markets and two examples of products sold in monopolistically competitive markets.II. The figure is drawn for a monopolistically competitive firm. PRICE 140 123.33 90 56.67 100 133.33 QUANTITY MC ATC Demand MR Refer to the figure above and explain: A). In order to maximize its profit, how many units the firm will choose to produce? 100 B). When the firm is maximizing its profit, the markup over marginal cost amounts to 50 C). The firm's maximum profit is D). Efficient scale is reached beyond which level of units? 133.33
- Which of the following statements is correct? a. In the long run, both perfectly competitive firms and monopolistically competitive firms operate with excess capacity. b. A firm operates with excess capacity when, in the long run, its level of output is below the efficient scale. c. For any firm, efficient scale is the level of output at which the average-total-cost curve is tangent to the demand curve. d. All of the above are correct.Exercise A.8. The graph below corresponds to a company operating in a market under conditions of monopolistic competition: € 5 4 3 2 1 CM CMe 20 40 60 90 100 120 Quantity of output a) What is the level of production maximizes the short-term profits of this company? b) What price will the company charge to maximize its profits? c) What benefits does the company obtain in the short term? d) How would advertising affect the curves shown in the graph? Would profits necessarily increase? Reason your answers.Suppose the market for toothpaste is monopolistically competitive and in? long-run equilibrium. The demand? (and marginal? revenue) for a firm in this industry is illustrated in the
- K Suppose the figure to the right represents the market for a particular brand of shampoo, such as L'Oreal, Lancome, or Maybelline. Assume the market is monopolistically competitive. What is the firm's profit-maximizing price and quantity? thousand per bottle. (Enter your The monopolistically competitive firm's profit-maximizing quantity is bottles of shampoo, and its profit-maximizing price is $ responses as integers.) Price and cost (per bottle) ♫ 3.00- MC 2.80- ATC 2.60- 2.40- 2.20- 2.00- 1.80- 1.60- 1.40- 1.20- 1.00- 0.80- 0.60- 0.40- 0.20- 0.00+ 0 MR 2 4 6 8 10 12 14 16 18 20 22 24 Quantity (shampoo bottles in thousands)Assume a monopolistically competitive firm encounters a decrease in average variable cost at all output levels.We would expect: a. The price to rise and output to rise b. The price to fall and output to fall c. The price to rise and output to fall d. The price to fall and output to riseMonopolistically competitive firms can earn above-normal economic profits in the short run. (a) In a few sentences, explain what will happen in the long run that will prevent monopolistically competitive firms from continuing to earn above-normal economic profits. (b) What is different about monopolists and oligopolists that allows these firms to earn above-normal economic profits in the long run, when perfectly competitive and monopolistically competitive firms cannot? Explain your answer in a few sentences.