Question 1

Figure 11-12
  Figure 11-12 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 11-12.If the diagram represents a typical firm in the designer watch market,what is likely to happen in the long run?

Accepted Answer

The answer of Figure 11-12
  Figure 11-12 shows short-run...

Question 2

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

Accepted Answer

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

Question 3

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 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 due to the economic profits being earned, which will increase competition and decrease demand for existing firms, leading to a decrease in economic profits.

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

The answer of Assuming that the total market size remains...

Question 6

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

Accepted Answer

In monopolistically competitive markets, firms have some control over the price of their products, but face competition from other firms producing slightly different products. In the short run, if a firm is incurring losses, it may choose to stay in the market in the hope of earning profits in the long run, or shut down temporarily or permanently. If some firms choose to leave the market due to losses, the remaining firms will experience an increase in the demand for their products, which can help them to cover their fixed costs and earn some profits in the short run. Therefore, option B is the best choice. Option A is incorrect because new firms may not enter the market if existing firms are already incurring losses. Option C may not necessarily happen because the remaining firms may still face some competition from other similar products. Option D is extreme and unrealistic because monopolistically competitive markets can continue to exist with some firms earning profits and others incurring losses.

Question 7

If a monopolistically competitive firm breaks even,the firm

Accepted Answer

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

Question 8

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 9

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

Accepted Answer

The firm is represented as producing at the point where marginal revenue (MR) equals marginal cost (MC), which results in zero economic profit. If the firm were making accounting profit, it would imply that their revenue is greater than their explicit costs (like wages and rent), but in this case, it is not the case. Therefore, the best choice is A) makes zero economic profit.

Question 10

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 short run, a monopolistically competitive firm may earn profits by charging a price higher than its marginal cost due to its differentiated product. However, in the long run, other firms may enter the market with similar products, increasing competition and reducing the demand for the original firm's product. As a result, the demand curve will shift to the left, indicating a decrease in the quantity demanded at any given price. Furthermore, the demand curve will become more elastic, indicating that consumers are more likely to switch to substitutes with similar qualities and prices.

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.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 13

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, the demand for each individual firm's product will decrease as consumers have more options to choose from. This will make the demand curve for the monopolistically competitive firm more elastic in the long run. Eventually, the firm's demand curve will become tangent to its average total cost curve, meaning that the firm is earning zero economic profit and is producing at its efficient scale. This is the long run equilibrium for a monopolistically competitive industry. Therefore, choice C is the best answer.

Question 14

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 15

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 16

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

Accepted Answer

If price is less than average cost, firms will experience losses and have an incentive to exit the market to avoid further losses. This will lead to a decrease in the number of firms in the market, which ultimately will increase the price to the point where it is equal to the average cost, eliminating any profits or losses. Therefore, in the long run, the market will reach a new equilibrium with fewer firms.

Question 17

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

Accepted Answer

The firm depicted in the diagram is in long-run equilibrium. This can be seen as the demand and supply curves intersect at the minimum point of the long-run average cost (LRAC) curve, indicating that the firm is producing at the efficient scale and earning normal profits.

Question 18

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

Accepted Answer

In monopolistic competition, there is relatively easy entry and exit into the market. As a result, if a firm starts making profits in the short run, new firms will enter the market, creating more competition and reducing the profits of existing firms. This leads to a situation where firms only earn normal profits (zero economic profit) in the long run. Therefore, choice B is correct, as the lack of entry barriers would compete away profits. The other choices (A, C, and D) are not sufficient explanations for why firms in monopolistic competition make zero profit in the long run.

Question 19

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?
 $\begin{array}{|c|c|c|c|c|c|c|c|}
\hline \begin{array}{c}
\text { Muffalettas } \
\text { Sold per } \
\text { Day }
\end{array} & \begin{array}{c}
\text { Price } \
(P)
\end{array} & \begin{array}{c}
\text { Total } \
\text { Revenue } \
(T R)
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Revenue } \
(M R)
\end{array} & \begin{array}{c}
\text { Total } \
\text { Cost }(T C)
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Cost }(M C)
\end{array} & \begin{array}{c}
\text { Total Cost } \
(A T C)
\end{array} & \text { Profit } \
\hline 0 & \$ 15 & & & \$ 12 & & & \
\hline 1 & 14 & & & 18 & & & \
\hline 2 & 13 & & & 20 & & & \
\hline 3 & 12 & & & 21 & & & \
\hline 4 & 11 & & & 23 & & & \
\hline 5 & 10 & & & 26 & & & \
\hline 6 & 9 & & & 30 & & & \
\hline 7 & 8 & & & 35 & & & \
\hline 8 & 7 & & & 42 & & & \
\hline 9 & 6 & & & 52 & & & \
\hline 10 & 5 & & & 78 & & & \
\hline
\end{array}$

Accepted Answer

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

Question 20

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

Accepted Answer

At the profit-maximizing output level, the marginal revenue (MR) is equal to the marginal cost (MC). This happens at Q₂ units where MR intersects with MC. At any other output level, the difference between MR and MC will not be zero, which means the firm can increase its profits by either increasing or decreasing output. Therefore, Q₂ units is the monopolistic competitor's profit-maximizing output.

Quiz 11: Monopolistic Competition and Oligopoly

Figure 11-12 Figure 11-12 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-12.If the diagram represents a typical firm in the designer watch market,what is likely to happen in the long run?

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

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

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

If a monopolistically competitive firm breaks even,the firm

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.The firm represented in the diagram

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

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.What is the allocatively efficient output for the firm represented in the diagram?

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

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

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

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

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