Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 11, Problem 4QP
To determine
Explain the long-run profit in the
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Your friend Stan owns a coffee shop in a monopolistically competitive industry. One day, Stan tells you (an economist) that he is earning an economic profit and is setting his price equal to his marginal cost. Is Stan producing the profit-maximizing amount of coffee? What should he do?
Will there be profits in the long run in a monopolistically competitive market?
If the firms in a monopolistically competitive market are earning economic profits or losses in the short run, would you expect them to continue doing so in the long run? Why?
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- Explain why firms operating in monopolistically competitive markets probably will not earn an economic profit in the long run.arrow_forwardMonopolistically competitive firms could increase the quantity they produce and potentially lower the average total cost of production. Why don't they do so?arrow_forwardHow do the results of a competitive industry compare with that of a monopolistic industry?arrow_forward
- Explain how a price taker firm could use monopolistic competition to become a price searcher.arrow_forwardWhat factors hinder firms in monopolistic competition from earning economic profits in the long run?arrow_forwardThe diagram above represents a monopolistically competitive firm. Answer the questions below. Is this firm operating in the short-run or long-run? How do you know? Calculate this firm’s accounting profit. From the diagram, what is the productively efficient output for this firm? From the diagram, economies of scale are maximized at which output level? Explain. From the diagram, what is the allocatively efficient output for this firm? Explain.arrow_forward
- Why do monopolistically competitive firms spend funds for the product development and advertising when this practice only adds to the firm’s costs?arrow_forwardIf the price of the product in a monopolistically competitive market decreases what happens to the number of individual firms in the market in the long run? What happens to the amount of profit the typical firm makes in the long run? Fully explain your answer.arrow_forwardWhen oil prices increased 10 fold during the 1973 – 80 energy crisis, many oil companies made huge profits. During this energy crisis, Congress considered imposing an “excess profits” tax on oil companies. If you were in Congress, would you vote for such a tax? Do unexpected monopolistic profits serve any useful function in a market economy?arrow_forward
- Why is a competitive market generally better for society than a monopolistic market?arrow_forwardSuppose you manage a local grocery store, and you learn that a very popular national grocery chain is about to open a store just a few miles away. Use the model of monopolistic competition to analyze the impact of this new store on the quantity of output your store should produce (Q) and the price your store should charge (P). What will happen to your profits? Explain your reasoning in detail. How and why do profits change? What could you do to defend your market share against the new store?arrow_forwardThe difference between monopolistic competition and perfect competition?arrow_forward
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