Question 1

In a monopolistically competitive market, if price is greater than average cost:

Accepted Answer

If price is greater than average cost, firms are earning profits which will attract new firms to enter the market in the long run. This increased competition will eventually drive down prices and reduce profits to a level where they are equal to zero. This is the long-run equilibrium condition in monopolistically competitive markets where firms earn zero economic profit.

Question 2

Figure 8.2
-Figure 8.2 shows demand and costs for a monopolistically competitive firm. In the long -run we expect:

Accepted Answer

The answer of  Figure 8.2
-Figure 8.2 shows demand and...

Question 3

Figure 8.2
-Figure 8.2 shows demand and costs for a monopolistically competitive firm. At the profit maximizing output level,

Accepted Answer

The answer of  Figure 8.2
-Figure 8.2 shows demand and...

Question 4

Figure 8.1
-If Figure 8.1 depicts the current situation for a monopolistically competitive firm, then in the long run we expect:

Accepted Answer

In the long run, new firms enter the market in monopolistic competition, driving prices down due to increased competition, leading to a price lower than P1.

Question 5

Figure 8.1
-Figure 8.1 depicts demand and costs for a monopolistically competitive firm. At the profit maximizing output level,

Accepted Answer

The answer of  Figure 8.1
-Figure 8.1 depicts demand and...

Question 6

Suppose Toorʹs beer is sold in a monopolistically competitive market. In the long run we expect the price of Toorʹs beer to:

Accepted Answer

The answer of Suppose Toorʹs beer is sold in a...

Question 7

Suppose Toorʹs beer is sold in a monopolistically competitive market. If the price of Toorʹs is currently $2 and the average cost of producing Toorʹs is $1, in the long run we can expect:

Accepted Answer

In the long run in a monopolistically competitive market, firms will enter the market, leading to an increase in competition and a decrease in demand for any particular firm's product. As a result, the price of Toor's beer is likely to decrease. However, the average cost of producing Toor's beer will increase as firms enter the market and compete for resources, pushing up the costs of production. Therefore, we can expect both the price of Toor's beer to decrease and the average cost of producing Toor's beer to increase in the long run.

Question 8

Figure 8.2
-Figure 8.2 shows demand and costs for a monopolistically competitive firm. In the long -run we expect:

Accepted Answer

In the long-run, we expect more firms to enter the market in monopolistically competitive industries. This is because firms in these industries have some market power, but not enough to earn economic profits in the long-run. As more firms enter the market, the demand curve for each individual firm shifts leftward and becomes more elastic, reducing the market power of each firm and driving down the price of the good. Additionally, the entry of new firms increases competition and may lead to improvements in production efficiency, which could lead to a decrease in the average cost of production. However, the demand curve for the firm does not shift to the right and the price of the good may not necessarily increase.

Question 9

Figure 8.2
-Figure 8.2 shows demand and costs for a monopolistically competitive firm. At the profit maximizing output level, the firmʹs profit is:

Accepted Answer

The profit maximizing output occurs where marginal revenue equals marginal cost. In this case, that occurs at an output level of 15 units. At that output level, the firm can charge a price of $70, which is the point where the demand curve intersects with the marginal revenue curve. The total cost at this level of output is $525, so the firm's profit is $1,050 ($1,050 = ($70 x 15) - $525).

Question 10

If profits in a monopolistically competitive market are positive, we can conclude that:

Accepted Answer

If profits in a monopolistically competitive market are positive, it means that price is greater than average cost. In the long run, however, competition will increase and reduce the profit margins. Therefore, the market may not be in long-run equilibrium despite current profits.

Question 11

Figure 8.4
-Figure 8.4 depicts demand and costs for a monopolistically competitive firm. At the profit maximizing output level,

Accepted Answer

The answer of  Figure 8.4
-Figure 8.4 depicts demand and...

Question 12

Figure 8.3
-Figure 8.3 shows demands and costs for a monopolistically competitive firm. When the firmʹs demand curve shifts from D1 to D2 and to D3,

Accepted Answer

The answer of  Figure 8.3
-Figure 8.3 shows demands and...

Question 13

If price is less than average cost in a monopolistically competitive market:

Accepted Answer

When price is less than average cost in a monopolistically competitive market, firms are not covering their costs, leading to losses. This situation provides an incentive for firms to exit the market to avoid further losses.

Question 14

Figure 8.2
-Figure 8.2 shows demand and costs for a monopolistically competitive firm. In the long -run we expect:

Accepted Answer

In the long-run, monopolistically competitive firms will produce at a level where price equals average cost, as depicted by the intersection of the demand and ATC curves in Figure 8.2. This is because in the long-run, firms in monopolistically competitive markets will be able to enter or exit the market, leading to a situation where the firm earns a normal profit. However, option A is not true because the firm is already operating at the profit-maximizing level of output given the current market conditions. Option C is also false as the average cost curve is shown to be constant in the figure. Finally, option D is not necessarily true as the profit earned by a monopolistically competitive firm in the long-run is only enough to cover its opportunity cost of capital.

Question 15

Figure 8.3
-Figure 8.3 shows demands and costs for a monopolistically competitive firm. When the firmʹs demand curve shifts from D1 to D2 and to D3, in the long-run we would expect:

Accepted Answer

In the long run, monopolistically competitive firms earn zero economic profit due to the entry of new firms, which shifts the demand curve until price equals average total cost.

Question 16

Figure 8.3
-Figure 8.3 shows demands and costs for a monopolistically competitive firm. When the firmʹs demand curve shifts from D1 to D2 and to D3,

Accepted Answer

The answer of  Figure 8.3
-Figure 8.3 shows demands and...

Question 17

Suppose Wave detergent is sold in a monopolistically competitive market. If the price of Wave detergent is currently $6, and the average cost of producing Wave is $4, in the long run we can expect:

Accepted Answer

In monopolistically competitive markets, firms can differentiate their products to some extent, meaning that there are close substitutes available. If Wave detergent is currently priced at $6 with an average cost of production of $4, there are likely economic profits being earned. This will attract new firms to enter the market and offer products similar to Wave, creating more competition and shifting the demand curve for Wave to the left. As a result, the producers of Wave may have to lower their prices or differentiate their product further to maintain market share. Eventually, in the long run, economic profits are expected to be zero due to increased competition.

Question 18

Figure 8.1
-If Figure 8.1 depicts the current situation for a monopolistically competitive firm, then in the long run we expect:

Accepted Answer

In the long run, new firms will enter the market if there are economic profits, increasing competition and driving the firm's demand curve down until price equals average cost, which may cause the firm's average cost of production to rise above AC1.

Question 19

Figure 8.1
-Profits for the monopolistically competitive firm depicted in Figure 8.1:

Accepted Answer

In the long run, new firms will enter the market and produce similar products, increasing competition and decreasing the monopolistically competitive firm's market power. As a result, profits will decrease in the long run.

Question 20

Figure 8.1
-If Figure 8.1 depicts the current situation for a monopolistically competitive firm, then in the long run we expect:

Accepted Answer

In the long run, monopolistically competitive firms will enter the market, increasing competition and shifting the demand curve for each individual firm to the left. This is because consumers now have more options for substitutes and can easily switch to other firms offering similar products. As a result, the monopolistically competitive firm will see a decrease in demand and likely a decrease in price as well.

Quiz 8: Market Entry, Monopolistic Competition, and Oligopoly

In a monopolistically competitive market, if price is greater than average cost:

Figure 8.2 -Figure 8.2 shows demand and costs for a monopolistically competitive firm. In the long -run we expect:

Figure 8.2 -Figure 8.2 shows demand and costs for a monopolistically competitive firm. At the profit maximizing output level,

Figure 8.1 -If Figure 8.1 depicts the current situation for a monopolistically competitive firm, then in the long run we expect:

Figure 8.1 -Figure 8.1 depicts demand and costs for a monopolistically competitive firm. At the profit maximizing output level,

Suppose Toorʹs beer is sold in a monopolistically competitive market. In the long run we expect the price of Toorʹs beer to:

Suppose Toorʹs beer is sold in a monopolistically competitive market. If the price of Toorʹs is currently $2 and the average cost of producing Toorʹs is $1, in the long run we can expect:

Figure 8.2 -Figure 8.2 shows demand and costs for a monopolistically competitive firm. In the long -run we expect:

Figure 8.2 -Figure 8.2 shows demand and costs for a monopolistically competitive firm. At the profit maximizing output level, the firmʹs profit is:

If profits in a monopolistically competitive market are positive, we can conclude that:

Figure 8.4 -Figure 8.4 depicts demand and costs for a monopolistically competitive firm. At the profit maximizing output level,

Figure 8.3 -Figure 8.3 shows demands and costs for a monopolistically competitive firm. When the firmʹs demand curve shifts from D1 to D2 and to D3,

If price is less than average cost in a monopolistically competitive market:

Figure 8.2 -Figure 8.2 shows demand and costs for a monopolistically competitive firm. In the long -run we expect:

Figure 8.3 -Figure 8.3 shows demands and costs for a monopolistically competitive firm. When the firmʹs demand curve shifts from D1 to D2 and to D3, in the long-run we would expect:

Figure 8.3 -Figure 8.3 shows demands and costs for a monopolistically competitive firm. When the firmʹs demand curve shifts from D1 to D2 and to D3,

Suppose Wave detergent is sold in a monopolistically competitive market. If the price of Wave detergent is currently $6, and the average cost of producing Wave is $4, in the long run we can expect:

Figure 8.1 -If Figure 8.1 depicts the current situation for a monopolistically competitive firm, then in the long run we expect:

Figure 8.1 -Profits for the monopolistically competitive firm depicted in Figure 8.1:

Figure 8.1 -If Figure 8.1 depicts the current situation for a monopolistically competitive firm, then in the long run we expect: