Micro Economics For Today
10th Edition
ISBN: 9781337613064
Author: Tucker, Irvin B.
Publisher: Cengage,
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Chapter P3, Problem 2KC
To determine
The condition of the firm in the market.
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In monopolistic competition,a firm produces 10,000 units when its marginal revenue equals its marginal cost. At this level of output, the firms
average variable cost is $4.30 and its average fixed cost is $2.10. If the firm sells the product for $5 each, at best it is earning
a. losses of $7,000.
b. a profit of $7,000.
c. losses of $14,000.
d. a profit of $14,000.
e. There is not enough information provided to answer this question.
A. To maximize profits, every firm should operate at theminimum point of its average total cost curves. Is thisstatement true or false? Explain.B. The demand for a monopolistically competitive firm'sproduct is generally more elastic than that for amonopolist's product? Is this statement true or false?Explain.
PLEASE ANSWER A AND B
Here is a graph for monopolistic competition in long run equilibrium. After seeing thisgraph, explain why this is bad news for an individual food truck business.
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- A perfectly competitive firm is onsidered to be more generous in terms of price and quantity of output in comparison to firm belonged to monopoly and monopolistic markets. C. If firms incurring loss in this market begin to exit the market, what will happen to the market equilibrium? Demonstrate your answer using a simplified graph. d. The firm wishes to supply output more than the quantity determined under the equilibrium condition, is it worth to pursue?arrow_forwardPlease dont copy and paste the answers One of your former peers starts up a firm after graduating NYUAD. However, he didn’t take Markets so is unsure if he is behaving optimally. He’s asked you for help. His firm faces monopolistic competition, has diminishing returns to its inputs and uses a fixed input. He is producing at a quantity such that P=MC, and he makes a positive profit. a. Draw the Demand curve, MR, MC, and ATC reflecting this situation on a graph. Label the quantity, price and profit of the firm under his strategy. b. Is his strategy maximizing his profits? Explain how he would do so if not. Label the quantity, price and profit of the firm under the optimal strategy on your graph in part a. c. He asks you about what you predict might happen to his profits in the future. What do you expect will happen to profits in this industry as we go to long run and why? What is the key assumption of monopolistic competition that gives you your conclusion?arrow_forwardII. The figure is drawn for a monopolistically competitive firm. PRICE 140 123.33 90 56.67 100 133.33 QUANTITY MC ATC Demand MR Refer to the figure above and explain: A). In order to maximize its profit, how many units the firm will choose to produce? 100 B). When the firm is maximizing its profit, the markup over marginal cost amounts to 50 C). The firm's maximum profit is D). Efficient scale is reached beyond which level of units? 133.33arrow_forward
- Give two characteristics of the following:a. a perfectly competitive marketb. a monopolistic marketarrow_forwardThe graph shows the demand curve, marginal revenue curve, and marginal cost curve of Java Time, Inc., a producer of espresso machines in monopolistic competition. Draw a point at the firm's the profit-maximizing price and quantity. Label it 1. Draw an arrow that shows Java Time's markup. Draw the average total cost curve such that Java Time does not have excess capacity. Label it. Draw a point at the intersection of the ATC curve and the MC curve. Label it 2. Java Time's markup is $a machine. 240 220- 200- 180- 160- 140 120- 100- 80- 60- 40- 20- 04 0 Price and cost (dollars per machine) MC 100 200 300 400 Quantity (espresso machines per week) D MR 500arrow_forwardMarkbury is a monopoly selling widgets. If the government imposes a $100 000 tax on every monopolistic firm in the country, then Select one: a. Markbury’s annual profit will no change since its marginal cost is unchanged b. Markbury’s annual profit will fall by $100 000 since its marginal cost would rise by $100 000 c. Markbury’s annual profit will fall by less than $100 000 since its marginal cost would rise by less than $100 000 d. Markbury’s annual profit will fall by $100 000 but its marginal cost will not change e. The impact on Markbury’s profit is difficult ascertain, without more informationarrow_forward
- Assume 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_forwardDraw a diagram illustrating the case of a firm in monopolistic competition making a profit. Label the demand curve D, the marginal revenue curve MR, the marginal cost curve MC, and the average total cost curve ATC. Show the quantity the firm will choose to produce and the price it will charge and mark that Q1and P1 respectively.arrow_forwardThe monopolistically competitive firm represented in the graph is in: $ $11.40 $10.20 $7.50 0 520 630 MC ATC MR Firm's Demand Quantity Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a long-run equilibrium since it is earning zero profit. b short-run equilibrium since it is earning zero profit. C short-run equilibrium, but not long-run equilibrium since it is earning positive economic profit. d long-run equilibrium, but not short-run equilibrium since it is earning positive economic profit. Your answerarrow_forward
- Monopolistic Competition. MC AC $15 $10 demand 400 525 Quantity of Brand X Using the information in the graph above, the long-run price in this market isarrow_forwardDE Quantity MC MR ATC Demand The graph above represents a firm in a monopolistically competitive market. Which of the following is true? The firm's profit-maximizing quantity is E. The firm is making a profit of (A - B) x D. The firm is making zero economic profits. The firm is making a loss of (A - B) x D.arrow_forwardThe profit-maximizing firm illustrated in Figure operates in a monopolistically competitive industry. Which of the following best explains what happens in the long run? Price 4 O MC ATC AVC D MR Quantityarrow_forward
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