Microeconomics (7th Edition)
Microeconomics (7th Edition)
7th Edition
ISBN: 9780134737508
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 13, Problem 13.6.4PA
To determine

In what way the competition is a risk to the monopolistically competitive firm.

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Suppose there are only two automobile companies, Ford and Chevrolet. Ford believes that Chevrolet will match any price it sets, but Chevrolet too is interested in maximizing profit. Use the following price and profit data to answer the following questions.                    Ford's               Chevrolet's                   Ford’s                       Chevrolet’s                    Selling                  Selling                      Profits                          Profits                     Price                    Price                     (millions)                      (millions)                   $ 4,000                $ 4,000                      $   8                              $   8                      4,000                    8,000                         12                                  6                       4,000                  12,000                         14                                  2                       8,000                    4,000…
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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 Quantity
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