Question 1

Figure 11-11
 
-Refer to Figure 11-11.What is the monopolistic competitor's profit maximizing output?

Accepted Answer

The profit maximizing output for the monopolistic competitor is where MR=MC. This occurs at Q₂ units, where the marginal cost curve intersects with the marginal revenue curve. At this output level, the firm can charge a price of P₂ and earn economic profits.  Outputs Q₁ and Q₃ are not profit maximizing because MR≠MC at those levels, and output Q₄ results in negative economic profits.

Question 2

In the long run,what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

Accepted Answer

In the long run, new firms will enter the monopolistically competitive market attracted by the short-run profits. This will increase the level of competition, leading to a decrease in the demand for each individual firm's product. As a result, the demand curve will shift to the left and become more elastic. This is because consumers now have more substitute products to choose from, making them more sensitive to changes in price.

Question 3

If a monopolistically competitive firm breaks even,the firm

Accepted Answer

The answer of If a monopolistically competitive firm breaks even,the...

Question 4

A monopolistically competitive industry that earns economic profits in the short run will

Accepted Answer

In the long run, new firms will enter the industry attracted by the economic profits being earned, increasing competition and reducing each firm's market share until profits are driven down to zero.

Question 5

Assuming that the total market size remains constant,a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

Accepted Answer

In monopolistic competition, firms have some control over the price they charge for their product. In the short run, a firm may be able to earn profits by differentiating its product and charging a higher price. However, in the long run, new firms may enter the market with similar or even better products. This will increase competition and reduce the demand for the existing firms' products. Some customers may switch to purchasing the products of new entrants in the market, reducing the demand for the monopolistically competitive firm's product. This will ultimately lead to a decrease in the firm's profitability in the long run. Therefore, option C is the correct answer.

Question 6

Why do most firms in monopolistic competition typically make zero profit in the long run?

Accepted Answer

In monopolistic competition, there are low barriers to entry, meaning that firms can easily enter the market and produce similar but differentiated products, leading to intense competition. This competition drives prices down and reduces profit margins. In the long run, this competition would drive down prices to the point where firms only make enough profit to cover their costs, resulting in zero long-run economic profit. Therefore, most firms in monopolistic competition typically make zero profit in the long run.

Question 7

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

Accepted Answer

As new firms enter the market and increase competition, the demand for the monopolistically competitive firm's product will decrease and become more elastic in the long run. Eventually, the firm's demand curve will become tangent to its average total cost curve, indicating that it is earning only normal profits and there is no incentive for new firms to enter the market. Therefore, the best choice is C.

Question 8

Figure 11-11
 
-Refer to Figure 11-11.What is the amount of excess capacity?

Accepted Answer

Excess capacity is defined as the difference between the quantity of output produced at the profit-maximizing level of production and the quantity of output that minimizes average total cost. In this figure, the profit-maximizing level of output is Q₄, but the output that minimizes average total cost is Q₂. Therefore, the amount of excess capacity is Q₄ - Q₂ units.

Question 9

Central Grocery in New Orleans is famous for its muffaletta,a large round sandwich filled with deli meats and topped with a tangy olive salad.Suppose the following table represents cost and revenue data for Central Grocery.Fill in the columns for TR,MR,MC,ATC,and profit.If Central Grocery wants to maximize profits,what price should it charge for a muffaletta,what quantity should it sell,and what will be the amount of its total profit?
 $$\begin{array} { | c | c | c | c | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Muffaletta } \
\text { 5 Sald per } \
\text { Day }
\end{array} & \begin{array} { c } 
\text { Price } \
( P )
\end{array} & \begin{array} { c } 
\text { Tatal } \
\text { Revenue } \
\text { (TR) }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Revenue } \
( M R )
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Cost } \
( \text { TC) }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cast (MC) }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Total Cast } \
\text { (ARC) }
\end{array} & \text { Prafit } \
\hline 0 & \$ 15 & & & \$ 12 & & & \
\hline 1 & 14 & & & 18 & & & \
\hline 2 & 13 & & & 20 & & & \
\hline 3 & 12 & & & 21 & & & \
\hline 4 & 11 & & & 23 & & & \
\hline 5 & 10 & & & 26 & & & \
\hline 6 & 9 & & & 30 & & & \
\hline 7 & 8 & & & 35 & & & \
\hline 8 & 7 & & & 42 & & & \
\hline 9 & 6 & & & 52 & & & \
\hline 10 & 5 & & & 78 & & & \
\hline
\end{array}$$

Accepted Answer

The answer of Central Grocery in New Orleans is famous...

Question 10

Figure 11-11
 
-Refer to Figure 11-11.What is the monopolistic competitor's profit maximizing price?

Accepted Answer

The answer of Figure 11-11
 
-Refer to Figure 11-11.What is...

Question 11

Figure 11-11
 
-Refer to Figure 11-11.What is the productively efficient output for the firm represented in the diagram?

Accepted Answer

The answer of Figure 11-11
 
-Refer to Figure 11-11.What is...

Question 12

Figure 11-11
 
-Refer to Figure 11-11.The diagram depicts a firm

Accepted Answer

The firm is producing where the marginal cost and average total cost (ATC) curves intersect, which is indicative of long run equilibrium. Additionally, the fact that the price (P) equals the ATC at this point reinforces that the firm is earning zero economic profit and is operating at its efficient scale. There is no indication of short run losses or changes in costs, so options A and B can be eliminated.

Question 13

Figure 11-11
 
-Refer to Figure 11-11.What is the allocatively efficient output for the firm represented in the diagram?

Accepted Answer

Allocative efficiency occurs when the marginal cost of production equals the marginal benefit to consumers. In the diagram, this occurs at the intersection of the marginal cost (MC) and marginal benefit (MB) curves at point Q₃. At this point, the firm is producing the optimal quantity of output that maximizes the overall welfare of society. Therefore, the allocatively efficient output for the firm is Q₃ units.

Question 14

Figure 11-11
 
-Refer to Figure 11-11.The firm represented in the diagram

Accepted Answer

The firm represented in the diagram is producing at the point where marginal revenue equals marginal cost, which is also the minimum point on the average total cost curve. This means the firm is making zero economic profit, as any increase in output would result in a decrease in profit. It is not necessarily making zero accounting profit, as accounting profit only takes into account explicit costs and not implicit costs. The information in the diagram does not suggest that the firm should exit the industry or expand its output to take advantage of economies of scale.

Question 15

You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants.Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce.What is likely to happen to your business in the long run?

Accepted Answer

The answer of You have just opened a new Italian...

Question 16

If a typical monopolistically competitive firm is making short-run losses,then

Accepted Answer

The answer of If a typical monopolistically competitive firm is...

Question 17

You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants.You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce.What is likely to happen in the restaurant market in your hometown after you open?

Accepted Answer

The answer of You are planning to open a new...

Question 18

Figure 11-6
 
-Refer to Figure 11-6.Suppose the above graph represents the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced by Dell.On a graph,illustrate the demand,MR,MC,and ATC curves which would represent Dell maximizing profits at a quantity of 100,000 per month and identify the area on the graph which represents the profit.

Accepted Answer

The answer of Figure 11-6
 
-Refer to Figure 11-6.Suppose the...

Question 19

A monopolistically competitive firm that is earning profits will,in the long run,experience all of the following except

Accepted Answer

The answer of A monopolistically competitive firm that is earning...

Question 20

In the long run,if price is less than average cost

Accepted Answer

When the price is less than the average cost, firms will incur losses in the long run. As a result, there will be an incentive for firms to exit the market to avoid further losses. This will lead to a decrease in the number of firms and a reduction in supply, which can eventually increase the price to the level of the average cost. In the long-run equilibrium, the price is equal to the average cost, and all firms are earning normal profits. Hence, when price is less than the average cost, there is an incentive for firms to exit the market.

Quiz 11: Monopolistic Competition and Oligopoly

Figure 11-11 -Refer to Figure 11-11.What is the monopolistic competitor's profit maximizing output?

In the long run,what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

If a monopolistically competitive firm breaks even,the firm

A monopolistically competitive industry that earns economic profits in the short run will

Assuming that the total market size remains constant,a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

Why do most firms in monopolistic competition typically make zero profit in the long run?

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

Figure 11-11 -Refer to Figure 11-11.What is the amount of excess capacity?

Figure 11-11 -Refer to Figure 11-11.What is the monopolistic competitor's profit maximizing price?

Figure 11-11 -Refer to Figure 11-11.What is the productively efficient output for the firm represented in the diagram?

Figure 11-11 -Refer to Figure 11-11.The diagram depicts a firm

Figure 11-11 -Refer to Figure 11-11.What is the allocatively efficient output for the firm represented in the diagram?

Figure 11-11 -Refer to Figure 11-11.The firm represented in the diagram

If a typical monopolistically competitive firm is making short-run losses,then

A monopolistically competitive firm that is earning profits will,in the long run,experience all of the following except

In the long run,if price is less than average cost