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- 3. How does a monopolistic competitor choose its profit-maximizing quantity of output and price?1. Why do monopolistic firms price their product within a price range where the demand is relatively elastic?3. The accompanying graph (bottom of this page) summarizes the demand and costs for a firm that operates in a monopolistically competitive market. a. What is the firm's optimal output? b. What is the firm's optimal price? c. What are the firm's maximum profits? d. What adjustments should the manager be anticipating? $220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 MC ATC 50 40 30 20 10 MR. 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Quantity 4. A firm has $1 million in sales, a Lerner index of 0.65, and a marginal cost of $35, and competes against 1,000 other firms in its relevant market. a. What price does this firm charge its customers? b. By what factor does this firm mark up its price over marginal cost? c. Do you think this firm enjoys much market power? Explain.
- Exercise 5.5 In this unit we have seen that monopolistically competitive firms could increase the amount they produce and reduce the ATC of production. Why don't they?7. The figure shows the monopolistically competitive market for smartphones. Plot the profit-maximizing price and quantity on the graph. Is this producer earning positive or negative profits in the short run? In the long run, will supply or demand for this producer's good be affected? Will economic profits increase or decrease for this producer?Which form is a monopolistic competitor operating in the long run?
- 1. How might advertising make market less competitive? How might it make markets more competitive? Give the arguments for and against brand names. 2. 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 = ATCExercise A.6. Do monopolistically competitive markets normally have the optimal number of products?4. In order to improve your chances of matching with someone, you decide to update your online dating profile. Specifically, you decide that to impress potential partners you will show off what you know about monopolies and marginal revenue. Draft out an explanation as to what marginal revenue is and how it relates to price for the monopolist so that you can have them all wanting to swipe right! 5. Select an industry that you think is monopolistically competitive. Describe how this industry meets all of the requirements for a monopolistically competitive market. 6. Katie confidently tells her mother that a monopolistically competitive firm will be able to make and keep an economic profit in the long run since they charge a price
- Dollars ($) truck kitc 3.2 The following diagram shows the structure of cost and demand facing a monopolistically competitive firm in the short run. 20 iv. Total cost v. Total profit or loss b. What is likely to happen in this industry in the long run? 15 14 13 10 6 a. Identify the following on the graph and calculate each one. i. Profit-maximizing output level ii. Profit-maximizing price iii. Total revenue 0 15 20 Units of output MC MR ATC D25. When monopolistically competitive firms advertise they hope to _________ and __________. When monopolistically competitive firms advertise they hope to _________ and __________. decrease market share; increase average total cost increase market share; increase average total cost increase market share; decrease average total cost decrease market share; decrease average total costWhat is the relationship between product differentiation and monopolistic competition? Or is there a relationship. Why?
