ECONOMICS W/CONNECT+20 >C<
20th Edition
ISBN: 9781259714993
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 13, Problem 3DQ
To determine
Monopolistic competition and monopoly .
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Assuming that the monopolistic competitor faces the demand and costs depicted below and finds the profit maximizing level of output, what will be the firm's profit?
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d. $12 x Incorrect. The profit maximizing output is 4 units where Marginal cost equals marginal revenue. At that output, use the demand curve to find the price and
calculate total revenue. At that output, use the average cost curve to find the average cost and calculate total cost. Then calculate profit = total revenue - total cost.
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What is a feature common to both Monopolistic-Competition and Oligopoly type of markets?
O productive efficiency will occur in both the short run and long run, a desirable economic property of markets.
many smaller sized firms can produce the good or service at lower cost per unit than larger sized firms, thus
large firms fail in the long run.
the demand curve for each firm is not going to be purely elastic, because products are at least slightly
different than potential rival firms' product and/or there may be some consumer brand loyalty.
Firms in both types of markets eventually will be broken up by government anti-trust laws and regulations.
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In the graph for Nike shoes, assume that Nike is selling their shoes in a monopolistically
competitive market. At the profit maximizing quantity, the TC of Nike is 100. What is Nike's profit
at this quantity?
O 150
O 140
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- Consider an oligopolistic market with 5 identical firms that choose their profit-maximizing quantities simultaneously. Suppose each firm has constant marginal costs of $123 per unit and the market elasticity of demand is - 1.08. What is the change in the prevailing market price if one additional firm joins the market? Assume that the potential entrant is identical to the incumbent firms. O A. -7.71 O B. - 5.51 O C. -9.92 O D. - 6.89arrow_forwardWhat did Harvard economist Edward Chamberlin say about the observation that a monopolistically competitive firm's average cost of production exceeds its minimum average total cost? Select one: O a. Chamberlin argued that this belief is incorrect. In his view, monopolistically competitive firms do not produce at a cost above their minimum average total costs. O b. Chamberlin argued that these higher costs represent the wastefulness of this market structure. O c. In Chamberlin's view, this is evidence that monopolistic competition uses society's resources inefficiently and in a fashion that merits government intervention. O d. According to Chamberlin, this cost difference represents the value consumers place on variety and having more choice.arrow_forwardRefer to the graph shown of a monopolistically competitive firm. If the firm maximizes profit, it will earn MC 585 $80 $75 $70 $65 A $60 $55 $50 MR $45 $40 o 4 8 12 16 Price WATC 24 20 Dresses per year in thousandsarrow_forward
- 7. Is monopolistic competition efficient? Suppose that a company operates in the monopolistically competitive market for rugby kits. 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. PRICE (Dolars per 3822ESRR 2 100 70 20 0 MO 6 19 20 ATC MR 30 AS 50 40 70 QUANTITY (Thousands of kits); Demand 8 100 Mon Comp Outcome Min Unit Cost Carrow_forwardQuestion 2 [JP.14.3.19] Consider a duopoly where the market demand is described by the equation: P = 150- Q. The marginal cost for each firm is $60. lo.] If the firms compete simultaneously with output, what is each firm's profit-maximizing output, the market quantity, and the price each firm charges? (b.) What is the economic profit eamed by each firm (from question [a]} [c.) If Firm 1 is a leader in output, what is each firm's profit-maximizing output, the market quantity, and the price each firm charges? [d.] What is the economic profit earned by each firm (from question [c])?arrow_forwardSuppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. 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. 100 90 Mon Comp Outcome 80 70 60 Min Unit Cost 50 ATC 40 30 20 10 MC MR Demand 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of bats) PRICE (Dollars per bat)arrow_forward
- The most important factor that drives the long-run profit to zero in monopolistic competition is the elasticity of the market demand curve the elasticity of the firm's demand curve free entry and exit O the reaction of rival firms to a change in price What is one difference between the Cournot and Stackelberg models? O In Cournot, both firms make price decisions simultaneously, and in Stackelberg, one firm sets its price level first O In Stackelberg, both firms make price decisions simultaneously, and in Cournot, one firm sets its price level first O In Cournot, both firms make output decisions simultaneously, and in Stackelberg, one firm sets its output level first O In Stackelberg, both firms make output decisions simultaneously, and in Cournot, one firm sets its output level first O Profits are zero in Cournot and positive in Stackelbergarrow_forwardQUESTION 1 Press F11 to exit full screen Which firm would earn profit in the long-run? O a monopolist firm. O a monopolistically competitive firm. O an oligopoly firm. O a perfectly competitive firm. QUESTION 2 Refer to the graph below for a monopolistically competitive firm. ↑Price MC 160 140 ATC 123.33 Demand 90 56.67 MR 100 133.33 154.92 Quantity If the above firm chose to produce at 100 units then the firm will be O earning a profit O incurring a loss O there is no profit and no loss O the firm can earn, profit, loss or break evenarrow_forwardQuestion 2 AnimoSpace Support ? Given the perfect competitor firm's supply curve below, what is the shutdown price? P(cost) MC AC 80 AVE 70 60 50 40 30 20 (10,10) 10 10 20 30 40 50 60 70 80 90 100 110 12 Qty Break-even quantity: Shutdown price: O 50 O 70 O 35 IS O 80 O 5 a Question 3 Which of these market structures is not correctly described? Monopolistic Nliaonoly Mononolhe o searcharrow_forward
- 1.Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications does each of the following most accurately fit? (a) a supermarket in your hometown; (b) the steel industry; (c) a Kansas wheat farm; (d) the commercial bank in which you or your family has an account; (e) the automobile industry. In each case, justify your classification. LO1arrow_forwardIntel and Advanced Micro Devices make most of the chips that power a PC. What makes the market for PC chips a duopoly? The PC chip market is a duopoly if O A. at the efficient scale, two firms can satisfy the market demand OB. each firm can divide its consumers into two categories-business consumers and household consumers O C. the two firms can charge different prices for the same quality of PC chip O D. the market produces two goods Assume that Intel and Advanced Micro Devices have identical costs. The graph shows the market demand curve. Draw the average total cost curve of one firm if the chip market produces 800 chips an hour and other firms are prevented from entering. Label the curve. Draw a point on the average total cost curve at the efficient scale. 110- 100- 90- 80+ 70- 60+ 50- 40- 30- 20+ 10- 0- Price (dollars per chip) 0 $800 200 400 800 600 Quantity (chips per hour) >>> Draw only the objects specified in the question. D 1000 Q Q 1200arrow_forwardWhich of the following statements concerning profit-maximizing firms in long-run equilibrium is true? In a purely competitive market, firms produce a level of output where price is greater than average total cost. In a purely competitive market, firms produce a level of output where price is greater than marginal cost. O In a monopolistically competitive market, firms produce a level of output at which price exceeds the minimum average total cost. In a monopolistically competitive market, firms produce a level of output that exceeds the output where average total cost is minimized.arrow_forward
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