Principles of Economics (Second Edition)
2nd Edition
ISBN: 9780393614077
Author: coppock, Lee; Mateer, Dirk
Publisher: W. W. Norton & Company
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Chapter 12, Problem 4QFR
To determine
Short run and Long Run equilibrium of
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Draw a diagram that depicts the profit maximization of a perfectly competitive and monopolistic market.
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What should the firm do regarding price and/or quantity to minimize its losses?
Which form is a monopolistic competitor operating in the long run?
Chapter 12 Solutions
Principles of Economics (Second Edition)
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- Monopolistic competition creates inefficiency because of the Price markups and excess capacity. The graph depicts the situation $100 for a hypothetical monopolistically competitive firm. The 90 curves included in the graph are demand (D), marginal 80 revenue (MR), average total cost (ATC), and marginal cost ATC (MC). Use the graph to find the requested values. 70 60 What is the size of the markup on the price? 50 40 markup: $ 30 What is the size of the excess capacity? 20 MC MR 10 units excess capacity: 20 30 40 50 60 70 80 90 10 100 Quantityarrow_forwardImagine a scenario in which the fashion industry is suffering from monopolistic price gouging and a dwindling demandarrow_forwardMonopolies can maintain economic profits in the short and long run because of barriers to entry which prevent competitors from entering the market. A Monopolistic Competition market does not have barriers to entry so firms are free to enter and leave the market. This creates a situation where there is a long and short run similar to perfect competition. Graph the following: A graph showing: short run economic profit A graph showing: short run economic loss A graph showing: long run - normal profit (economic profit equal to zero)arrow_forward
- Monopolies can maintain economic profits in the short and long run because of barriers to entry which prevent competitors from entering the market. A Monopolistic Competition market does not have barriers to entry so firms are free to enter and leave the market. This creates a situation where there is a long and short run similar to perfect competition. A graph showing: short run economic profit A graph showing: short run economic loss A graph showing: long run - normal profit (economic profit equal to zero)arrow_forwardThe graph shows the demand curve, marginal revenue curve, and marginal cost curve of Big Splash, Inc., a producer of wading pools in monopolistic competition. Draw a point at the firm's profit-maximizing price and quantity. Draw a vertical arrow that shows the firm's markup. Draw a shape that shows the firm's economic profit. Big Splash's markup is $ a pool. Big Splash's excess capacity is Big Splash's economic profit is $ 360 340- 320 300- 280- 260- 240- 220- 200- 180- 160- 140- 120- 100- 80- 60- 40+ Price and cost (dollars per pool) 0 10 MC 20 ATC D MR 30 40 50 60 70 80 Quantity (pools per week) >>> Draw only the objects specified in the question. Q Qarrow_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
- Suppose the accompanying graph depicts a monopolistically competitive firm earning positive economic profits. Please shift the curves to show the effects of long-run competition and then place Point A at the price and quantity at which the firm will produce in the long-run.arrow_forwardSuppose you operate in a monopoly environment and you set your price in order to achieve maximum profits. Is your demand elastic, unitary elastic, or inelastic? Does your answer change if you were in a monopolistically competitive market? What happens to the elasticity when you go from a monopolistic market to a monopolistically competitive one? Explain and give an example.arrow_forwardMonopolies can maintain economic profits in the short and long run because of barriers to entry which prevent competitors from entering the market. A Monopolistic Competition market does not have barriers to entry so firms are free to enter and leave the market. This creates a situation where there is a long and short run similar to perfect competition. Graph the following: A graph showing short run economic profitarrow_forward
- Will there be profits in the long run in a monopolistically competitive market?arrow_forwardSuppose that, due to a successful advertising campaign, a monopolistic competitor experiences an increase in demand for its product. How will that affect the price it charges and the quantity it supplies? Show on a graph.arrow_forwardWhat factors hinder firms in monopolistic competition from earning economic profits in the long run?arrow_forward
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