A firm operating in monopolistic competition is maximizing its profit and earning negative economic profits. Which of the following must true of its production? The price is equal to average total cost at the quantity where marginal revenue equals marginal cost. The price is less than average total cost at the quantity where marginal revenue equals marginal cost. The price is equal to average total cost, and marginal revenue is less than marginal cost The price is greater than average total cost at the quantity where marginal revenue is equal to marginal cost. The price is greater than average total cost at the quantity where marginal revenue is less than marginal cost.
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- The monopolistically competitive firm represented in the graph is in: $ $11.40 $10.20 $7.50 0 520 630 MC ATC MR Firm's Demand Quantity Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a long-run equilibrium since it is earning zero profit. b short-run equilibrium since it is earning zero profit. C short-run equilibrium, but not long-run equilibrium since it is earning positive economic profit. d long-run equilibrium, but not short-run equilibrium since it is earning positive economic profit. Your answerSuppose you operate in a monopoly environment and you set your price inorder to achieve maximum prots. Is your demand elastic, unitary elastic, or inelastic? Does your answer change if you were in a monopolistically competitive market? What happens to the elasticity when you go from a monopolistic market to a monopolistically competitive one? Explain and give an example. Retailer companies sell many products for which manufacturers have a sug-gested retail price printed on the package. Is there an economic reason for this price? If you are the manager of a retailing outlet, what factors will determine whether you should charge the suggested retail price or some higher or lower price?A monopolistically competitive firm has a total cost curve represented by TC = 250+ 3Q + Q² and a marginal cost represented by MC = 3 + 2Q. The firm faces the demand curve P = 99 - 2Q. What do we expect to happen in the long run? O Firms will exit the industry, but if this firm remains its profits will increase. O The firm will earn an economic profit in the long run. O Additional firms will enter the industry and this firm's profit will decrease. O This firm will sell its product at marginal cost. MacBook A esc 800 F1 F2 F3 F4 2$ 4 W R T Y ock G %24 2
- Use the figure below to answer the following questions. Price and cost (dollars per unit) MC Ps РА P₂ P 0 Q1 Q2 Q3 Q4 QQ₂ Q3 Q zero MR Refer to Figure 13.2.4. The figure represents a monopolistically competitive firm in short-run equilibrium. What is the firm's level of output? ATC Quantity (units) Figure 13.2.4Bob competes in a monopolistically competitive market. Suppose some new firms enter the market, causing his perceived demand curve to shift. The following tables show Original Demand Curve his demand curves, before and after the change, and his cost information. Price Quantity TC Assume that Bob can only choose from the quantities of output given in the table. By how much will his profit change after these new firms enter the market? $33 $20,000 $32 1,000 $30,000 $31 2,000 $45,000 $30 3,000 $70,000 $29 4,000 $100,000 New Demand Curve Price Quantity TC $30 $20,000 $29 1,000 $30,000 $28 2,000 $45,000 $27 3,000 $70,000 $26 4,000 $100,000 O his profits will not change O decrease by $9,000 O increase by $11,000 O decrease by $11,000You own Athleticon, which manufactures athletic wear. Your new contract with Atlanta United, a professional soccer team, allows Athleticon to be the sole suppler of athletic wear with the “Atlanta United” logo. No one lese can manufacture athletic wear with the “Atlanta United” logo. What do you think will be Athleticon’s level of profitability on the sale of “Atlanta United” athletic wear? Explain why. Your contract with Atlanta United only lasts 3 years. It was not renewed. Other firms can now manufacture athletic wear with the “Atlanta United” logo It is now 5 years after your contract with Atlanta United was terminated. Any manufacturer that wants to can manufacture and sell athletic wear with the “Atlanta United” logo. What do you think will be the level of profitability and rate of return on manufacturing athletic wear with the “Atlanta United” logo? Explain why.
- In both perfectly competitive and monopolistically competitive markets, when firms are making positive economic profits, other firms willenter until price equals ATC and profits are zero.Despite these similarities, in a perfectly competitive market total surplus is maximized, while ina monopolistically competitive market surplus isnot maximized. Explain this difference.Fill in the missing data for this Monopolistically Competitive firm. Don't forget to answer the questions below the chart. I. Average Total Marginal Total Marginal Total Total Quantity Price Revenue Revenue Cost Cost Cost Profit 50 na na -50 1 48 75 2 46 45 37 4 31 135 25 15 32 38 7 175 253 /////// 8. 144 311 9 90 379 /////I/ 10 459 This firm's fixed costs are? Assuming no inflation, we would predict this firm's price to rise/fall/ stay the same. Explain your answer.Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. PRICE (Dolars per kit) 100 8 80 70 50 8 10 0 MO 10 ATC 20 30 O True O False MR 60 70 QUANTITY (Thousands of kits) Demand 40 80 90 100 Mon Comp Outcome Min Unit Cost Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that firm. Further, a monopolistically competitive firm's average total cost in long-run equilibrium is True or False: This indicates that there is excess capacity in the market for kits. at the optimal quantity for each the minimum average total cost.
- The graph below shows cost and revenue curves for a monopolistically competitive firm. Price $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 $0.25 0 20 40 60 MR Quantity It will charge a price of $ ATC MC D 80 100 120 140 160 This monopolist's profit-maximizing output level is on the x-axis.] units. [Watch for the scaleThe 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 10Compare the elasticity of the monopolistic competitor’s demand with that of a pure competitor and a pure monopolist. Assuming identical long-run costs, compare graphically the prices and outputs that would result in the long run under pure competition and under monopolistic competition. Contrast the two market structures in terms of productive and allocative effifi ciency. Explain: “Monopolistically competitive industries are characterized by too many firms, each of which produces too little.”