Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 14, Problem 7P
To determine
To explain:
Whether the
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What are the most important differences between perfectly competitive markets and monopolistically competitive markets? Give two examples of products sold in perfectly competitive markets and two examples of products sold in monopolistically competitive markets.
How is the perceived demand curve for a monopolistically competitive firm different from the perceived demand curve for a monopoly or a perfectly competitive firm? Why?
Monopolistically competitive firms could increase the quantity they produce and potentially lower the average total cost of production. Why don't they do so?
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- What do economists mean when they say that competitive markets are more efficient than monopolistic markets? Monopolistic markets result in lower price and higher production Competitive markets result in lower prices, monopolistic market result in higher production Competitive markets result in lower costs, lower prices, and higher levels of production Easy entry and exitarrow_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_forwardWhy is a competitive market generally better for society than a monopolistic market?arrow_forward
- In what ways is a monopolistically competitive firm likely to be less efficient than one under perfect competition?arrow_forwardIs a monopolistically competitive firm productively efficient? Is it allocatively efficient? Why or why not?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? Why?arrow_forward
- Which of the following is shared by both monopolistically competitive markets and prefectly competitive markets?arrow_forwardWhen we compare the long run conditions of a Perfectly Competitive firm to the long run conditions of a Monopolistically Competitive firm we see that the Perfectly Competitive firm is less productive and cost efficient than the Monopolistically Competitive firm more productively efficient and less cost efficient than the Monopolistically Competitive firm less productively efficient and more cost efficient than the Monopolistically Competitive firm more productive and cost efficient than the Monopolistically Competitive firmarrow_forwardWhy do monopolistically competitive firms spend funds for the product development and advertising when this practice only adds to the firm’s costs?arrow_forward
- 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_forwardThe 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 will be the economic profit or loss for this monopolistically competitive firm at the profit-maximizing level of output?arrow_forward
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