EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
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Question
Chapter 12, Problem 3QR
To determine
The reason for producing a less than efficient scale by a monopolistic competitive firm.
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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?
Monopolistically competitive firms could increase the quantity they produce and potentially lower the average total cost of production. Why don't they do so?
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?
Chapter 12 Solutions
EBK PRINCIPLES OF MICROECONOMICS (SECON
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- How is the perceived demand curve for a monopolistically competitive firm different from the perceived demand curve for a monopoly or a perfectly competitive firm? Why?arrow_forwardWhy is a competitive market generally better for society than a monopolistic market?arrow_forwardWhat will be the economic profit or loss for this monopolistically competitive firm at the profit-maximizing level of output?arrow_forward
- Explain why firms operating in monopolistically competitive markets probably will not earn an economic profit in the long run.arrow_forwardIn the long run, monopolistically competitive firms produce a level of output such that:arrow_forwardWill there be profits in the long run in a monopolistically competitive market?arrow_forward
- When 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_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_forwardThe following graph represents a monopolistically competitive firm in long-run equilibrium. Place the black point (cross sign) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Next, place the grey star on the graph to indicate the point where the LRAC reaches a minimum. PRICE PER UNIT (Dollars) 500 450 400 350 300 250 200 150 100 50 MC 0 0 50 LRAC MR Demand 100 150 200 250 300 350 400 450 500 QUANTITY (Units) Monopolistically Competitive Outcome Minimum of the LRAC The long-run equilibrium price is $ (Hint: Use the graph to find the numeric value of the price at equilibrium.) The long-run equilibrium quantity is units. The LRAC curve is at its minimum at a quantity of The long-run equilibrium price is units. the marginal cost of producing the equilibrium output. ?arrow_forward
- Which of the following is shared by both monopolistically competitive markets and prefectly competitive markets?arrow_forwardIs a monopolistically competitive firm productively efficient? Is it allocatively efficient? Why or why not?arrow_forwardA monopolistically competitive firm maximize profit wherearrow_forward
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