Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Chapter 14, Problem 13Q
To determine
The following statement is true.
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Assume firms in the short run are earning above-normal profits. Explain what will happen to these profits in the long run for the following markets:
Pure monopoly
Oligopoly
Monopolistic competition
Perfect competition
3. How short-run profit or losses induce entry or exit
Citrus Scooters is a company that manufactures electric scooters in a monopolistically competitive market. The following graph shows the demand
curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC) for Citrus.
Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive
company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss.
PRICE (Dollars per scooter)
500
450
400
350
300
250
200
150
100
50
0
MC
0
50
100
ATC
Demand
150 200 250 300 350 400 450 500
QUANTITY (Scooters)
MR
Monopolistically Competitive Outcome
Given the profit-maximizing choice of output and price, Citrus Scooters is earning
Profit or Loss
sellers in the industry relative to the long-run equilibrium amount.
Now consider the long run in which scooter manufacturers are free to…
Which of the following statements are true for a typical firm in this market given the transition from monopolistic competition to perfect competition? Check all that apply.
Profit remains unchanged.
Marginal cost decreases.
The quantity decreases.
Average total cost remains unchanged.
The price decreases.
Chapter 14 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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- If an industry's long-run average total cost curve has a negative slope over an extended range of quantity (as shown on the diagram here), what is the most likely market structure for this industry? $ Long-run ATC Quantity The industry consists of firms of various sizes. The industry consists of many small firms. The industry is monopolistically competitive. The industry is monopolistic.arrow_forwardWhich of the following is true in the long run for both perfect competition and monopoly? 1 Firms cannot earn economic profit in the long run. 2 Individual firms have no ability to control the price of their output but must accept the market price. 3 Firms go out of business in the long run if total revenue cannot cover total cost. 4 Firms can earn economic profit in the long run.arrow_forwardWhy is there a price markup over marginal cost in monopolistic competition? a downward-sloping demand curve, price exceeds marginal cost The graph shows the demand curve and marginal revenue curve of Whitewater, Inc., a producer of rubber rafts in monopolistic competition. Draw the marginal cost curve if the firm produces 150 rafts a week. Label it. Draw a point at the intersection of the MC and MR curves. Draw a point to show the price that Whitewater charges for a raft when it produces 150 rafts a week. Draw an arrow to show the amount of Whitewater's markup. What is Whitewater's markup? Whitewater's markup is $750 a raft. 750- 675- 600- 525- 450- 375- 300- 225- 150- 75- 0 Price and cost (dollars per raft) 50 100 150 Quantity (rafts per week) D MR 200 >>> Draw only the objects specified in the question. 21arrow_forward
- 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, Revenuearrow_forwardIn the long run equilibrium, which of the following will be correct for both perfectly competitive firms and monopolistically competitive firms? There is no social deadweight loss. Price is equal to average cost. Price is equal to marginal cost. Price is equal to marginal revenue.arrow_forwardA market where there are only a few sellers is known as: monopolistic. oligopolistic. monopolistically competitive. cartelized. perfectly competitive.arrow_forward
- Under monopolistic competition, firms produce________ a: products that are somewhat differentiated. b: a unique product without close substitutes. c: It depends on the individual firm. d: identical productsarrow_forwardHow short-run profit or losses induce entry or exit Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). 2. How short-run profit or losses induce entry or exit Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss 500 400 350 300 ATC 250 * 200 150 100 MO MR 450 50 30 PRICE (Dollars per l 0 Demand A 0 50 100 150 200 250 300 350 400 450 500 QUANTITY…arrow_forwardRefer to the graphic above. The output produced in this market (Monopolistic) is ____ units, while produced under a comparable perfectly competitive market would have been at least ____ units.arrow_forward
- 2. HOW Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. PRICE (Dollars per bike) 500 450 400 350 300 250 200 150 100 50 0 0 Mo 50 100 ATC MR 200 250 300 350 QUANTITY (Bikes) 150 Demand 400 450 500 Monopolistically Competitive Outcome Given the profit-maximizing choice of output and price, the shop is earning shops in the industry than in long-run equilibrium. Profit or Loss profit, which means there arearrow_forwardThese two cases provide examples of markets that are characterized neither as perfect competition nor monopoly. Instead, these firms are competing in market structures that lie between the extremes of monopoly and perfect competition. How do they behave? Why do they exist?arrow_forwardIn the long run, zero economic profit exists in monopolistic competition and perfect competition. true or falsearrow_forward
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