Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 13, Problem 3DQ
To determine
The differentiation of goods in
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What will be the economic profit or loss for this monopolistically competitive firm at the profit-maximizing level of output?
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Aside from advertising, how can monopolistically competitive firms increase demand for their products? What effect would doing this have on the elasticity of the firm’s perceived demand curve? Explain your answers.
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?
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- Answer all four questions! Is a monopolistically competitive firm productively efficient? How can you tell? Offer one reason why a monopolistically competitive firm might be productively inefficient. Is it allocatively efficient? How can you tell? Offer one reason why a monopolistically competitive firm might be allocatively inefficient.arrow_forwardExplain why firms operating in monopolistically competitive markets probably will not earn an economic profit in the long run.arrow_forwardThe following graph shows a firm operating in a monopolistically competitive market. Short term, how many haircuts will the firm perform and at what price? At this point, what will its total revenue, total cost, and total profit be? Given your answers, what would we expect to happen in the long term in this market (i.e. are we at long term equilibrium, or will we see further changes)?arrow_forward
- Why do monopolistically competitive firms spend funds for the product development and advertising when this practice only adds to the firm’s costs?arrow_forwardIf 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? Explain your answer Is a monopolistically competitive firm productively efficient? How can you tell? Offer one reason why a monopolistically competitive firm might be productively inefficient. Is it allocatively efficient? How can you tell? Offer one reason why a monopolistically competitive firm might be allocatively inefficient. What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits? Offer two obstacles to oligopolists cooperating. Aside from advertising, how can monopolistically competitive firms increase demand for their products? What effect would doing this have on the elasticity of the firm’s perceived demand curve? Explain your answers. Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a…arrow_forwardCan you please explain further why are condominiums considered imperfect competition and are monopolistically competitive?arrow_forward
- Imagine a scenario in which the fashion industry is suffering from monopolistic price gouging and a dwindling demandarrow_forwardIn the long run, the positive economic profits earned by the monopolistic competitor will attract a response either from existing firms in the industry or firms outside. As those firms capture the original firm’s profit, what will happen to the original firm’s profit-maximizing price and output levels? Show on a grapharrow_forwardMonopolistically competitive firms in a market face the following demand and costs, where P is price, Q is quantity, and N is the number of firms in the market 200 Demand: Q = - P N Total Cost: TC = 8+Q² a. How many units will a firm produce and what price will it charge to maximize profit? b. How much profit will the firm earn? c. How many firms will be in the market in the long run?arrow_forward
- The 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_forwardWhat effect would a successful advertising campaign differentiating a product from one's competitors have on a monopolistically competitive firm's demand and its elasticity of demand? What does this do to the firm's profits? You may have heard the slogan: "advertising doesn't cost, it pays?" Is that sometimes true?arrow_forward
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