Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 13.2.1RQ
To determine
Why a monopolistically-competitive firm does not produce at P = MC.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
9 . Perfect Competition
The market for peanut butter in Nutville is monopolistically competitive and in long-run equilibrium.
The following graph shows the marginal-cost (MC) curve and the average-total-cost (ATC) curve for a peanut-butter-producing firm. It also shows the
demand curve and marginal-revenue (MR) curve faced by a firm operating in a monopolistically competitive environment.
On the following graph, use the black point (plus symbol) to show the profit-maximizing output and price for a typical firm operating in a
monopolistically competitive environment.
Demand
Profit Max Under MC
Perfect Comp. Outcome
ATC
MC
MR
Quantity
Price, Cost, Revenue
encient?
Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve,
marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm.
Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next,
place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost.
3;
100
50
90
80
88
+
70
70
60
550
40
PRICE (Dollars per razor)
30
30
10
MC
20
20
0
10
10
ATC
+.
?
Mon Comp Outcome
MR
Demand
20
30
40
50
60
70
80
90
100
QUANTITY (Thousands of razors)
Min Unit Cost
Why can’t firms under monopolistic competition achieve an economic profit in the long run?
Chapter 13 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 13 - Prob. 13.1.1RQCh. 13 - Prob. 13.1.2RQCh. 13 - Prob. 13.1.3RQCh. 13 - Prob. 13.1.4PACh. 13 - Prob. 13.1.5PACh. 13 - Prob. 13.1.6PACh. 13 - Prob. 13.1.7PACh. 13 - Prob. 13.1.8PACh. 13 - Prob. 13.1.9PACh. 13 - Prob. 13.1.10PA
Ch. 13 - Prob. 13.2.1RQCh. 13 - Prob. 13.2.2RQCh. 13 - Prob. 13.2.3RQCh. 13 - Prob. 13.2.4PACh. 13 - Prob. 13.2.5PACh. 13 - Prob. 13.2.6PACh. 13 - Prob. 13.2.7PACh. 13 - Prob. 13.2.8PACh. 13 - Prob. 13.2.9PACh. 13 - Prob. 13.3.1RQCh. 13 - Prob. 13.3.2RQCh. 13 - Prob. 13.3.3RQCh. 13 - Prob. 13.3.4RQCh. 13 - Prob. 13.3.5PACh. 13 - Prob. 13.3.6PACh. 13 - Prob. 13.3.7PACh. 13 - Prob. 13.3.8PACh. 13 - Prob. 13.3.9PACh. 13 - Prob. 13.3.10PACh. 13 - Prob. 13.3.11PACh. 13 - Prob. 13.3.12PACh. 13 - Prob. 13.4.1RQCh. 13 - Prob. 13.4.2RQCh. 13 - Prob. 13.4.3RQCh. 13 - Prob. 13.4.4RQCh. 13 - Prob. 13.4.5PACh. 13 - Prob. 13.4.6PACh. 13 - Prob. 13.4.7PACh. 13 - Prob. 13.4.8PACh. 13 - Prob. 13.4.9PACh. 13 - Prob. 13.5.1RQCh. 13 - Prob. 13.5.2RQCh. 13 - Prob. 13.5.3PACh. 13 - Prob. 13.5.4PACh. 13 - Prob. 13.5.5PACh. 13 - Prob. 13.5.6PACh. 13 - Prob. 13.5.7PACh. 13 - Prob. 13.6.1RQCh. 13 - Prob. 13.6.2RQCh. 13 - Prob. 13.6.3PACh. 13 - Prob. 13.6.4PACh. 13 - Prob. 13.6.5PACh. 13 - Prob. 13.6.6PACh. 13 - Prob. 13.1CTECh. 13 - Prob. 13.2CTECh. 13 - Prob. 13.3CTE
Knowledge Booster
Similar questions
- What does it mean to say that: “A firm operating under perfect competition conditions is a price taker"?Why Can't this firm set any price it chooses? What if it operates in a monopolistically competitive market, would it be able to set the price? Why? Give some real life examples to support your answer.arrow_forwardSuppose that in the short run the firms in a monopolistically competitive industry are making an economic profit. what is likely to happen in this market over the long run? Will the firms be able to sustain this economic profit over the long run? Describe the adjustment process in this market towards the long run equilibrium in detail.arrow_forwardExplain Profit Maximization Pricing?arrow_forward
- Why is a competitive market generally better for society than a monopolistic market?arrow_forwardSuppose that Tommy Hilfiger's marginal cost of a jacket is a constant $100 and at one of the firm's shops, total fixed cost is $2,000 a day. The profit-maximizing number of jackets sold in this shop is 20 a day. When the shops nearby start to advertise their jackets, this Tommy Hilfiger shop spends $2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 50 a day. What happens to Tommy's markup and its economic profit? Why? Tommy's markup A. rises, falls, or remains unchanged depending on the effect of advertising on demand OB. falls because advertising decreases demand OC. rises because advertising increases demand OD. does not change because advertising is generally ineffective Search In the short run, Tommy's economic profit ** A. is unknown, zero OB. decreases with advertising, zero OC. increases with advertising, positive OD. is unknown, positive In the long-run, Tommy's economic profit is Nextarrow_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
- Is a monopolistically competitive firm productively efficient? Is it allocatively efficient? Why or why not?arrow_forwardI think that there is something wrong with step 4. In the long run, monopolistically competitive firm's function should be P = ATC, not P = MC. Long run monopolistic firm cannot turn into perfectly competitive firm in that way.arrow_forwardExplain how a price taker firm could use monopolistic competition to become a price searcher.arrow_forward
- Susan owns a restaurant that sells hamburgers in a monopolistically competitive market. The graph to the right depicts the demand and marginal revenue for her hamburgers. Suppose that Susan's restaurant is maximizing profits at 35 hamburgers (per day). Assume that the monopolistically competitive industry is at a long-run equilibrium. Use the three-point curve drawing tool to add Susan's long run average cost (ATC) curve to the graph. Properly label this curve. Carefully follow the instructions above, and only draw the required objects. ul Price and cost (dollars per hamburger) 2.00- 2.25- 2.00- 1.75 1.50- 1.25 1.00- 0.75- 0.50 0.25 0 MR 10 20 30 40 50 60 70 80 Quantity of hamburgers (per day) ATC D 90 100 a Garrow_forwardDraw a diagram to show the long-run equilibrium of a firm in a Monopolistically Competitive market clearly labeling the profit maximizing level of Q and P. Is P greater/less than ATC? Is P greater/less than MC? How much profit firm is earning in the long run? Also show the efficient level of outcome and explain why this firm does not produce at the efficient level.arrow_forwardIn the long run monopolistically competitive firms are inherently inefficient. do you agree? explainarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc