Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 14, Problem 4Q
To determine
The continuation of firm in monopolistic market, when it earns negative profits.
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Your friend Stan owns a coffee shop in a monopolistically competitive industry. One day, Stan tells you (an economist) that he is earning an economic profit and is setting his price equal to his marginal cost. Is Stan producing the profit-maximizing amount of coffee? What should he do?
Will there be profits in the long run in a monopolistically competitive market?
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?
Chapter 14 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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- Is a monopolistically competitive firm productively efficient? Is it allocatively efficient? Why or why not?arrow_forwardThe diagram above represents a monopolistically competitive firm. Answer the questions below. Is this firm operating in the short-run or long-run? How do you know? Calculate this firm’s accounting profit. From the diagram, what is the productively efficient output for this firm? From the diagram, economies of scale are maximized at which output level? Explain. From the diagram, what is the allocatively efficient output for this firm? Explain.arrow_forwardAnswer the question: 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.arrow_forward
- Explain why firms operating in monopolistically competitive markets probably will not earn an economic profit in the long run.arrow_forwardMonopolistically competitive firms could increase the quantity they produce and potentially lower the average total cost of production. Why don't they do so?arrow_forwardIn the long run, the economic profits for a monopolistically competitive firm will bearrow_forward
- What will be the economic profit or loss for this monopolistically competitive firm at the profit-maximizing level of output?arrow_forwardWhy do monopolistically competitive firms spend funds for the product development and advertising when this practice only adds to the firm’s costs?arrow_forwardIn the long run,the selling price of a monopolistically competitive firm's product is equal to the minimum per-unit cost of production.Do you agree with this statement? If not,then why not?arrow_forward
- You are a consultant to a monopolistically competitive firm. The firm reports the following information about its price, marginal cost, and average total cost. P = MC, P > ATCP > MC, P = ATC Illustrating with graph(s), can the firm possibly be maximising profit? If not, what should it do to increase profit? If the firm is profit-maximising, is the firm in a long-run equilibrium? If not, what will happen to restore long-run equilibrium? PLZ EXLAIN MORE DETAILS AND WRITE IT CLEARLY THX!!!arrow_forwardAn industry said to be characterized by monopolistic competition is the apparel industry. Suppose you were hired as a consultant by a firm in this industry. How would you advise the firm as to the levels of output, price, input usage, and advertising? What problems might the firm encounter?arrow_forward
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