Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 10, Problem 3P
To determine
Characteristics of
Concept Introduction:
Monopolistic competition is a type of competition where producers offer products that are slightly differentiated from one another.
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ICE (Dollars per scooter)
3. How short-run profit or losses induce entry or exit
Citrus Scooters is a company that manufactures electric scooters in a monopolistically competitive market. The following graph shows the demand
curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC) for Citrus.
Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive
company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss
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QUANTITY (Scooters)
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Monopolistically Competitive Outcome
Profit or Loss
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Given the profit-maximizing choice of output and price, Citrus Scooters is earning
sellers in the industry relative to the long-run equilibrium amount.
Now consider the long run in which scooter manufacturers are free to enter and…
2. Entry or exit in the long run
Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand
curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC).
Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive
company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss.
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Profit or Loss
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QUANTITY (Bikes)
Given the profit-maximizing choice of output and price, the shop is earning
profit, which means there are
shops in the industry than in long-run equilibrium.
PRICE (Dollars per bike)
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
continuing to earn above-normal economic profits.
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- (12) Suppose all firms in a monopolistically competitive industry were merged into one large firm. Would that new firm produce as many different brands? Would it produce only a single brand? Explain.arrow_forward(Monopolistic Competition and Perfect Competition Com- pared) Illustrated below are the marginal cost and aver- age total cost curves for a small firm that is in long-run equilibrium. a. Locate the long-run equilibrium price and quantity if the firm is perfectly competitive. b. Label the price and quantity pP, and q,. c. Draw in a demand and marginal revenue curve to illus- trate long-run equilibrium if the firm is monopolistically competitive. Label the price and quantity p, and q2.arrow_forward(Figure: The Market for Designer Boots in Monopolistic Competition IV) Use Figure: The Market for Designer Boots in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is in panel Price, cost XXX G; (A) H; (B) (a) O I; (C) O F; (A) ATC Quantity (per period) Price, (b) cost ATC Quantity (per period) Price, (c) cost ATC Quantity (per period)arrow_forward
- 3. Monopolistic competition in the short run Consider a shop that produces muffins in a monopolistically competitive market. The following graph shows its demand curve (Demand), marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Assume that the company is operating in the short run. PRICE AND COSTS (Dollars per muffin) $3.50 $2.75 $2.50 $1.90 $1.00 The profit-maximising level of output is At the profit-maximising output and price, the shop's profit equals Given the profit-maximising choice of output and price, the shop is making there are 1 I MR MC 1 1 1 Demand 230 280 QUANTITY (Muffins per day) muffins per day at a price of 160 ATC each. profit, which means that shops in the industry relative to the long-run equilibrium.arrow_forwardThe table shows the total revenue of the 50 firms in the candy and confectionery industry. Total revenue Firm What additional information would you need about the candy and confectionery industry to be sure that it is an example of monopolistic competition? (dollars) Sugar Mountain Sugar + Spice Simply Candy Fudge Factory Next 10 firms (each) Next 16 firms (each) Next 20 firms (each) 1,450 1,300 To be sure that the candy and confectionery industry is an example of monopolistic competition, we would need additional information about 800 650 200 O A. the market demand curve 150 O B. the price elasticity of supply 125 OC. the type of technology used in production O D. product differentiation, barriers to entry, advertising, and competition on price, quality, and features Industry 11,100 O E. the average total cost of each firmarrow_forwardPRICE (Dolars per bike) 2. How short-run profit or losses induce entry or exit Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal-revenue (MR) curve, marginal-cost (MC) curve, and average-total-cost (ATC) curve. Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph. 500 400 400 ATC 300 250 200 150 100 Mo Demand 0 ° 50 100 150 200 200 300 350 450 500 QUANTITY (Bikes) Monopolistically Competitive Outcome Profit or Loss Given the…arrow_forward
- Assignment 9 Question 1 A monopolistic producer of two goods, G, and G2, has a joint total cost function TC = 5Q1 + Q1Q2 +5Q2 Where Q1 and Q2 denote the quantities of G1 and G2 respectively. If P, and P2 denote the corresponding prices then the demand equations are P1 = 40 – Q1 + Q2 Ра 3 20 + 2Q1- Q2 a) Find the total revenue function for each good b) Find the profit function for the firm c) Find the maximum profit if the firm is contracted to produce a total of 12 goods of either type d) Find the price that the firm is supposed to charge for each good. e) Estimate the new optimal profit if the production quota increases to 15 unitarrow_forward(Scenario: Monopolistic Competition in the Hotel Industry) Use Scenario: Monopolistic Competition in the Hotel Industry. Given the information in the scenario, in the long run, this firm can expect to have an optimal price of: Scenario: Monopolistic Competition in the Hotel Industry For a monopolistically competitive firm operating in the hotel industry, the demand curve is given by Q = 160 - P, and the firm's cost functions are MC = 20 + 20 and TC = 200 + Q2. O S180 $80 O S75 O $40arrow_forwardRefer to Figure 1. If the market price is $2, what the firm will do? Enable Editing 4) Use the figure below to answer the following questions. Price and cost (dollars per unit) 80 MC 60 40 ATC 20 MR 20 40 60 80 100 Quantity (units per week) Figure 2 a) Refer to Figure 2 If this firm is in monopolistic competition, what is its output? b) Refer to Figure 2 If this firm is in monopolistic competition, what is the price it will charge? c) Refer to Figure 2. What is the firm profit situation? What time frame equilibrium is the firm? d) Refer to Figure 2. If this firm in monopolistic competition is in short-run equilibrium, and the firm making profit what will happen in the long run to the firm profit? explainarrow_forward
- 4. Study Questions and Problems #4 Consider this statement: "Because price equals long-run average cost and profits are zero, a monopolistically competitive firm is efficient." Do you agree or disagree? Agree, because a monopolistically competitive firm produces a socially optimal output. Disagree, because a monopolistically competitive firm does not produce enough output from a socially optimal point of view. Disagree, because a monopolistically competitive firm produces too much output from a socially optimal point of view.arrow_forwardQUESTION 11 Price and costs (dollars per calculator) 20 000 16 12 8 0 100 MC ATC O MR 200 300 400 500 600 Quantity (calculators per day) The figure above shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. What quantity does the firm produce? more than 300 calculators per day and less than 400 calculators per day 300 calculators per day 400 calculators per day 200 calculators per dayarrow_forward(Monopolistic Competition and Perfect Competition Compared)Illustrated below are the marginal cost and averagetotal cost curves for a small firm that is in long-runequilibrium.a. Locate the long-run equilibrium price and quantity ifthe firm is perfectly competitive.b. Label the price and quantity p1 and q1.c. Draw in a demand and marginal revenue curve to illustratelong-run equilibrium if the firm is monopolisticallycompetitive. Label the price and quantity p2 and q2 .d. How do the monopolistically competitive firm’s priceand output compare to those of the perfectly competitivefirm?e. How do long-run profits compare for the two types offirms?arrow_forward
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