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? The monopolistically competitive firm's profit-maximizing quantity is thousand bottles of shampoo, and its profit-maximizing price is $ per bottle. (Enter your responses as integers.) Price and cost (per bottle) 3.00- MC 2.80- ATC 2.60- 2.40- E 2.20- 2.00 1.80- 1.60- 1.40- 1.20 1.00- 0.80- 0.60- 0.40- 0.20 0.00+ MR 0 2 4 6 8 10 12 14 16 18 20 22 24 Quantity (shampoo bottles in thousands)

Now, suppose that Barefeet can practice perfect price discrimination that is, it knows each consumer's willingness to pay for each pair of Ooh boots and is able to charge each consumer that amount. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the firm sells its boots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) PRICE (Dollars per pair of Och boots) 100 90 80 70 60 50 40 30 20 10 0 0 20 MC = ATC Demand 40 60 80 100 120 140 160 180 200 QUANTITY (Pairs of Ooh boots) Monopoly Outcome Profit A Consumer Surplus Deadweight Loss Consider the…

Price and costs Consider the diagram below depicting the demand and cost conditions faced by a monopolistically competitive firm. a. Use the graph to show how price and output will vary depending upon which point the firm produces. Indicate the levels that will be produced under profit maximization, productive efficiency, and allocative efficiency. Instructions: (1) Use the tool provided 'Profit maximizing' to plot a point showing the price-quantity combination when the firm is maximizing profit. (2) Use the tool provided 'Productive efficiency' to plot a point showing the price-quantity combination when the firm is producing the productively efficient output level. (3) Use the tool provided 'Allocative efficiency' to plot a point showing the price-quantity combination when the firm is producing the allocatively efficient output level. Demand MR Quantity MC Tools -9 --i Productive eff Profit maximiz ATC Allocative effi

Discuss the long-term effects in a monopolistically competitive market if an existing firm is making profits or losses. Use graphs to help your explanations.

ls uccess Tips ■ccess Tips NOUT Actumpto Koup the Highest/3 3. Is monopolistic competition efficient? Suppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. 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 (Dollars par bat) 80 70 60 20 MO о о 10 20 40 ATC 60 QUANTITY (Thousands of bas) Demand Man Camp Outcome Min Unit Cost Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that optimal quantity. Furthermore, the quantity the firm produces in long-run equilibrium is average total cost. at the the quantity at which…

1. Briefly discuss the various ways monopolistically competitive firms can differentiate their products?   2.  In the long-run, a perfectly competitive firm will earn what kind of economic profit?

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Study Tools ins ess Tips ss Tips PRICE (Dellars per engine) 288 RSS #RR 100 50 30 20 10 MO 0 0 10 ATC MR Demand 20 30 40 50 70 DO 90 QUANTITY (Thousands of engines) 100 Mon Comp Outcome Min Unt Cost Decause this market is a monopolistically competitive market, you can tell that it is in long-run equilibrum by the fact that optimal quantity. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is average total cost. at the the minimum

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Question 13