Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 11.1, Problem 2ST
To determine
Explain why the monopolistic competitors operate at excess capacity.
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Why do monopolistically competitive firms spend funds for the product development and advertising when this practice only adds to the firm’s costs?
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?
What factors hinder firms in monopolistic competition from earning economic profits in the long run?
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- Monopolistically competitive firms could increase the quantity they produce and potentially lower the average total cost of production. Why don't they do so?arrow_forwardWhich form is a monopolistic competitor operating in the long run?arrow_forwardHow does a monopolistic competitor choose its profit-maximizing quantity of output and price?arrow_forward
- Why is product differentiation important in monopolistic competition?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_forwardYour 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?arrow_forward
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