Microeconomics (7th Edition)
7th Edition
ISBN: 9780134737508
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 15, Problem 15.2CTE
To determine
Commonality in
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Monopolistic competition creates inefficiency because of the
Price
markups and excess capacity. The graph depicts the situation
$100
for a hypothetical monopolistically competitive firm. The
90
curves included in the graph are demand (D), marginal
80
revenue (MR), average total cost (ATC), and marginal cost
ATC
(MC). Use the graph to find the requested values.
70
60
What is the size of the markup on the price?
50
40
markup: $
30
What is the size of the excess capacity?
20
MC
MR
10
units
excess capacity:
20
30
40
50
60
70
80
90
10
100
Quantity
Suppose you manage a local grocery store, and you learn that a very popular national grocery chain is about to open a store just a few miles away. Use the model of monopolistic competition to analyze the impact of this new store on the quantity of output your store should produce (Q) and the price your store should charge (P).
What will happen to your profits? Explain your reasoning in detail.
How and why do profits change?
What could you do to defend your market share against the new store?
Monopolies can maintain economic profits in the short and long run because of barriers to entry which prevent competitors from entering the market. A Monopolistic Competition market does not have barriers to entry so firms are free to enter and leave the market. This creates a situation where there is a long and short run similar to perfect competition.
Graph the following:
A graph showing short run economic profit
Chapter 15 Solutions
Microeconomics (7th Edition)
Ch. 15 - Prob. 15.1.1RQCh. 15 - Prob. 15.1.2RQCh. 15 - Prob. 15.1.3PACh. 15 - Prob. 15.1.4PACh. 15 - Prob. 15.1.5PACh. 15 - Prob. 15.1.6PACh. 15 - Prob. 15.2.1RQCh. 15 - Prob. 15.2.2RQCh. 15 - Prob. 15.2.3RQCh. 15 - Prob. 15.2.4RQ
Ch. 15 - Prob. 15.2.5PACh. 15 - Prob. 15.2.6PACh. 15 - Prob. 15.2.7PACh. 15 - Prob. 15.2.8PACh. 15 - Prob. 15.2.9PACh. 15 - Prob. 15.2.10PACh. 15 - Prob. 15.2.11PACh. 15 - Prob. 15.2.12PACh. 15 - Prob. 15.2.13PACh. 15 - Prob. 15.3.1RQCh. 15 - Prob. 15.3.2RQCh. 15 - Prob. 15.3.3RQCh. 15 - Prob. 15.3.4PACh. 15 - Prob. 15.3.5PACh. 15 - Prob. 15.3.6PACh. 15 - Prob. 15.3.7PACh. 15 - Prob. 15.3.8PACh. 15 - Prob. 15.3.9PACh. 15 - Prob. 15.3.10PACh. 15 - Prob. 15.4.1RQCh. 15 - Prob. 15.4.2RQCh. 15 - Prob. 15.4.3PACh. 15 - Prob. 15.4.4PACh. 15 - Prob. 15.4.5PACh. 15 - Prob. 15.4.6PACh. 15 - Prob. 15.4.7PACh. 15 - Prob. 15.5.1RQCh. 15 - Prob. 15.5.2RQCh. 15 - Prob. 15.5.3RQCh. 15 - Prob. 15.5.4PACh. 15 - Prob. 15.5.5PACh. 15 - Prob. 15.5.6PACh. 15 - Prob. 15.5.7PACh. 15 - Prob. 15.5.8PACh. 15 - Prob. 15.5.9PACh. 15 - Prob. 15.5.10PACh. 15 - Prob. 15.5.11PACh. 15 - Prob. 15.5.12PACh. 15 - Prob. 15.5.13PACh. 15 - Prob. 15.1CTECh. 15 - Prob. 15.2CTECh. 15 - Prob. 15.3CTE
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- There are four market models: perfect competition, monopolistic competition, oligopoly and monopoly. Briefly discuss the assumptions of each of these four models and give examples of each. Explain the long run economic profit earned by each of the four. Explain how the concept of economic profit might help explain the rationale for the government’s granting of monopolies to those firms that protect their product with a patent.arrow_forwardMonopolies can maintain economic profits in the short and long run because of barriers to entry which prevent competitors from entering the market. A Monopolistic Competition market does not have barriers to entry so firms are free to enter and leave the market. This creates a situation where there is a long and short run similar to perfect competition. Graph the following: A graph showing: short run economic profit A graph showing: short run economic loss A graph showing: long run - normal profit (economic profit equal to zero)arrow_forwardMonopolies can maintain economic profits in the short and long run because of barriers to entry which prevent competitors from entering the market. A Monopolistic Competition market does not have barriers to entry so firms are free to enter and leave the market. This creates a situation where there is a long and short run similar to perfect competition. Graph the following: A graph showing short run economic lossarrow_forward
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