Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971493
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 16, Problem 9PA
Subpart (a):
To determine
Classifying firms engaging in advertising.
Subpart (b):
To determine
Classifying firms engaging in advertising.
Subpart (c):
To determine
Classifying firms engaging in advertising.
Expert Solution & Answer
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For each of the following pairs of firms, explain which firm would be more likely to engage in advertising and why.
a. a family owned farm or a family owned restaurant
b. a manufacturer of forklifts or a manufacturer of cars
c. a company that invented a very comfortable razor or a company that invented a less comfortable razor
3 of 7
3. Use the graph below to answer the following questions:
a. Profit maximizing output level_
b. Price charged by the monopolistic competitor_
c. Total Revenue_
d. Total Cost_
e. Variable Cost
f. Fixed Cost_
g. Profit or Loss
h. Number of units the firm should produce in the short run and explain why?
i. Number of units the firm should produce in the long run and explain why?
j.
In the long run, (exit/entry)_ will cause the firm's share of the market to
(increase/decrease). and the firm will (decrease/increase) advertising
k. In the long run the firm's costs will (decrease/increase)
will (increase/decrease)
of the market
5453
4.5
4
3.5
2
40 45 50
MC
MR
until loss is driven to
ATC
and the firm's share
AVC
d = firm's
market share
Why is a competitive market generally better for society than a monopolistic market?
Chapter 16 Solutions
Principles of Microeconomics (MindTap Course List)
Ch. 16.1 - Prob. 1QQCh. 16.2 - Prob. 2QQCh. 16.3 - Prob. 3QQCh. 16 - Prob. 1CQQCh. 16 - Prob. 2CQQCh. 16 - Prob. 3CQQCh. 16 - Prob. 4CQQCh. 16 - Prob. 5CQQCh. 16 - If advertising makes consumers more loyal to...Ch. 16 - Prob. 1QR
Ch. 16 - Prob. 2QRCh. 16 - Prob. 3QRCh. 16 - Prob. 4QRCh. 16 - How might advertising reduce economic well-being?...Ch. 16 - Prob. 6QRCh. 16 - Prob. 7QRCh. 16 - Prob. 1PACh. 16 - Prob. 2PACh. 16 - Prob. 3PACh. 16 - Prob. 4PACh. 16 - Prob. 5PACh. 16 - Prob. 6PACh. 16 - Prob. 7PACh. 16 - Prob. 8PACh. 16 - Prob. 9PACh. 16 - Sleek Sneakers Co. is one of many firms in the...
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- 3. The accompanying graph (bottom of this page) summarizes the demand and costs for a firm that operates in a monopolistically competitive market. a. What is the firm's optimal output? b. What is the firm's optimal price? c. What are the firm's maximum profits? d. What adjustments should the manager be anticipating? $220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 MC ATC 50 40 30 20 10 MR. 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Quantity 4. A firm has $1 million in sales, a Lerner index of 0.65, and a marginal cost of $35, and competes against 1,000 other firms in its relevant market. a. What price does this firm charge its customers? b. By what factor does this firm mark up its price over marginal cost? c. Do you think this firm enjoys much market power? Explain.arrow_forwardWho are our competitors? What are their marketing strategies?arrow_forwardOn a graph, show the demand for Elixir water and Elixir Spring’s marginal revenue curve. What are Elixir’s profit-maximizing price, output, and economic profit?arrow_forward
- K Suppose the figure to the right represents the market for a particular brand of shampoo, such as L'Oreal, Lancome, or Maybelline. Assume the market is monopolistically competitive. What is the firm's profit-maximizing price and quantity? thousand per bottle. (Enter your The monopolistically competitive firm's profit-maximizing quantity is bottles of shampoo, and its profit-maximizing price is $ responses as integers.) Price and cost (per bottle) ♫ 3.00- MC 2.80- ATC 2.60- 2.40- 2.20- 2.00- 1.80- 1.60- 1.40- 1.20- 1.00- 0.80- 0.60- 0.40- 0.20- 0.00+ 0 MR 2 4 6 8 10 12 14 16 18 20 22 24 Quantity (shampoo bottles in thousands)arrow_forwardQuestion 19 of 20 > O Macmillan Learning The accompanying graph depicts average total cost (ATC), marginal cost (MC), marginal revenue (M), and demand (D) facing a monopolistically competitive firm. Place point A at the firm's profit maximizing price and quantity. What is the firm's total cost? total cost: $ What is the firm's total revenue? total revenue: $ What is the firm's total profit? profit: $ Price and Cost ($) 50 45 40 35 30 25 20 15 10 5 MR MC ATC D 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95100 Quantityarrow_forwardMonopolistic Competition On the next few slides be sure to answer the following questions. What is monopolistic competition? Give an example of monopolistic competition. How many sellers are competing? What are the barriers to entry? Do the sellers have control over their price? Why or why not? Are the products different? Give an example of an advertisement that demonstrates companies competing based on product differentiation.arrow_forward
- Question #3: Dell and Sony compete primarily by price. Each firm must choose either a high price or a low price simultaneously. Use the following information to create the profit matrix:1. If Dell and Sony both set high prices, Dell’s profit is $40 million and Sony’s profit is $35 million.2. If Dell sets high price and Sony sets low price, Dell’s profit is $25 million and Sony’s profit is $40 million.3. If Dell sets low price and Sony sets high price, Dell’s profit is $50 million and Sony’s profit is $10 million.4. If Dell and Sony set low prices, Dell has $20 million and Sony has $15 million.Please answer the follow questions:a. Does Sony have a dominant strategy? Dell? If so, which one?b. If Dell and Sony maximize their profits non-cooperatively, what is the Nash-equilibrium for this profit matrix?c. Instead, if Dell and Sony maximize their joint profits cooperatively, what is the equilibrium? Assume they keep their agreements.arrow_forwardAssume a monopolistically competitive firm encounters a decrease in average variable cost at all output levels.We would expect: a. The price to rise and output to rise b. The price to fall and output to fall c. The price to rise and output to fall d. The price to fall and output to risearrow_forwardAndreas Day Spa began to offer a relaxing aromatherapy treatment. The film asks you how much to charge to maximize profits. The first two columns in Table 10.5 provide the price and quantity for the demand curve for treatments. The third column shows its total costs. For each level of output, calculate total revenue, marginal revenue, average cost, and marginal cost. What is the profit-maximizing level of output for the treatments and how much will the firm earn in profits?arrow_forward
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