Question 1

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle). If the distance around the island is 50 miles and there are two restaurants equally spaced on the island and each of 100 people are equally spaced around the island and eat a meal a day at a restaurant, what will be the average distance traveled to and from restaurants in a day's time?

Accepted Answer

Since the two restaurants are equally spaced on the island, they are 25 miles apart from each other (50 miles divided by 2). Since demand is evenly spread out along the circle, each restaurant serves 50 customers. The average distance traveled to and from a restaurant for each customer would be half the circumference of the circle divided by the number of customers, or (50/2)/50 = 0.5 miles. Therefore, the average distance traveled to and from a restaurant in a day's time would be 0.5 miles * 100 customers = 50 miles. However, the question asks for the average distance per person, so we divide 50 miles by the number of customers, which results in 50/100 = 0.5 miles or 12.5 miles round-trip. Therefore, the correct answer is C.

Question 2

The graph below shows the Chamberlin model. The dd curve is based on the assumption that

Accepted Answer

The answer of The graph below shows the Chamberlin model....

Question 3

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle). As transportation costs on the island rise,

Accepted Answer

The answer of Suppose that firms are located in a...

Question 4

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle). In an example of restaurant location on an island, if the number of people on the island doubled, the number of restaurants

Accepted Answer

The answer of Suppose that firms are located in a...

Question 5

The demand curve shown below has four points depicting possible total market oligopoly outcomes of quantity and price. For the given demand and price coordinates labeled A-D, pick the matching oligopoly models that lead to these comparative outcomes.

Accepted Answer

The answer of The demand curve shown below has four...

Question 6

Which of the following is an application of the Hoteling model of monopolistic competition?

Accepted Answer

The Hoteling model of monopolistic competition explains why stores of similar types tend to cluster together rather than spreading out equidistantly. This is because each firm wants to be located close to its competitors in order to attract customers who are already in the area looking for similar goods or services. This creates a situation where each firm differentiates itself from its competitors in some way, such as through pricing, location, or product variety. Overall, the Hoteling model helps to explain the behavior and strategies of firms operating in monopolistically competitive markets.

Question 7

The graph below shows the Chamberlin model. The profit-maximizing price is at

Accepted Answer

The answer of The graph below shows the Chamberlin model....

Question 8

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle). As the firm's variable costs rise,

Accepted Answer

The answer of Suppose that firms are located in a...

Question 9

The graph below shows the Chamberlin model. If additional firms enter the market we would expect

Accepted Answer

The answer of The graph below shows the Chamberlin model....

Question 10

If a monopolistically competitive firm is making positive economic profits, we would expect

Accepted Answer

A monopolistically competitive market structure allows for easy entry and exit of firms, so if one firm is making positive economic profits, it is likely to attract new entrants to the market, which will increase competition and decrease the market share and profits of the existing firm. Therefore, we would expect entry of other firms in response to positive economic profits.

Question 11

Suppose there are two firms in a market: firm A and firm B. Further, assume that they produce a homogenous product at a constant marginal cost of $10. In the Bertrand model solution, firm A will charge a price

Accepted Answer

In the Bertrand model, firms compete by setting prices, and consumers will always choose the lowest price. As both firms have the same constant marginal cost of $10, they will set a price equal to their marginal cost in order to maximize profits. Therefore, both firms will set the same price of $10, and there will be no pricing power or differentiation between the two firms.

Question 12

The graph below shows the Chamberlin model. One would expect the demand curve facing a monopolistically competitive firm to be

Accepted Answer

In Chamberlin model, the monopolistically competitive firm faces a downward-sloping demand curve, which means there are substitutes available for consumers. Therefore, if the monopolistically competitive firm raises its price too much, consumers can switch to other similar products, resulting in a highly elastic demand curve. Hence, the demand curve facing a monopolistically competitive firm is more elastic than a monopoly in the same industry.

Question 13

The graph below shows the Chamberlin model. The profit maximization level of output for a monopolistically competitive firm is

Accepted Answer

The answer of The graph below shows the Chamberlin model....

Question 14

In the long run, a monopolistically competitive firm acting according to the Chamberlin model

Accepted Answer

In the long run, a monopolistically competitive firm acting according to the Chamberlin model will not operate at the minimum point of the average cost curve. This is because there is product differentiation, and the firm will not be able to produce at the lowest possible cost due to the need to differentiate their product. As a result, the firm will earn zero economic profits in the long run.

Question 15

The graph below shows the Chamberlin model. At the profit maximizing price and output the firm is making

Accepted Answer

Since the profit maximizing price and output is above the average cost curve, the firm is earning a positive economic profit at this point.

Question 16

Suppose that two firms are producers of spring water, which can be obtained at zero cost. The market demand curve for their combined output is p = 100 - Q where p is the price and Q is the amount of spring water sold by both together. If the two producers act in accord with the Cournot model, their combined output will be

Accepted Answer

In the Cournot model, firms assume that their competitor's output remains constant when deciding their own output levels, and they maximize their profits accordingly.

To find the optimal output level for each firm, we need to use the profit maximization equation:

π = (p - c)Q

where π is profit, p is price, c is marginal cost, and Q is output. Since the cost of obtaining spring water is zero, the marginal cost is also zero.

The market demand curve is:

p = 100 - Q

To obtain the total quantity demanded, we add the quantity demanded by each firm:

Q = Q1 + Q2

The profit maximization condition for each firm is:

dπ1/dQ1 = p - Q1 - Q2 = 0

dπ2/dQ2 = p - Q1 - Q2 = 0

Solving for Q1 and Q2, we get:

Q1 = Q2 = 33.33

Total output, Q = Q1 + Q2 = 66.66

Therefore, the optimal combined output for both firms is 66.66. Hence, the answer is B) 66.66.

Question 17

The variety that monopolistic competition provides is paid primarily by

Accepted Answer

Monopolistic competition allows firms to differentiate their products and offer a variety of options to consumers. The cost of offering this variety is primarily paid by the customers who desire that variety and are willing to pay for it. The producer may also bear some of this cost if they are unable to fully pass on the costs to consumers due to their demand curve. However, it is ultimately the customers who are paying for the variety being offered.

Question 18

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle). As the number of customers increase,

Accepted Answer

As the number of customers increases, the market becomes larger, allowing more firms to enter and sustain themselves in the long run due to increased demand. This is based on the assumption that with more customers, the revenue potential increases, making it viable for more firms to cover their costs and compete in the market.

Question 19

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle). As the firm's fixed costs increase,

Accepted Answer

As fixed costs increase, it becomes more expensive to establish a new firm on the island. Therefore, it is less likely that new firms will enter the market, and existing firms may exit or consolidate in order to achieve economies of scale. This will lead to a decrease in the number of firms in the long run.

Question 20

Which of the duopoly models has the lowest overall combined profit level?

Accepted Answer

In the Bertrand model, the firms compete on price and try to undercut each other. This leads to a price war and lower profits for both firms. Therefore, the Bertrand model has the lowest overall combined profit level.

Quiz 13: Oligopoly and Monopolistic Competition

The graph below shows the Chamberlin model. The dd curve is based on the assumption that

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle) . As transportation costs on the island rise,

The demand curve shown below has four points depicting possible total market oligopoly outcomes of quantity and price. For the given demand and price coordinates labeled A-D, pick the matching oligopoly models that lead to these comparative outcomes.

Which of the following is an application of the Hoteling model of monopolistic competition?

The graph below shows the Chamberlin model. The profit-maximizing price is at

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle) . As the firm's variable costs rise,

The graph below shows the Chamberlin model. If additional firms enter the market we would expect

If a monopolistically competitive firm is making positive economic profits, we would expect

Suppose there are two firms in a market: firm A and firm B. Further, assume that they produce a homogenous product at a constant marginal cost of $10. In the Bertrand model solution, firm A will charge a price

The graph below shows the Chamberlin model. One would expect the demand curve facing a monopolistically competitive firm to be

The graph below shows the Chamberlin model. The profit maximization level of output for a monopolistically competitive firm is

In the long run, a monopolistically competitive firm acting according to the Chamberlin model

The graph below shows the Chamberlin model. At the profit maximizing price and output the firm is making

The variety that monopolistic competition provides is paid primarily by

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle) . As the number of customers increase,

Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle) . As the firm's fixed costs increase,

Which of the duopoly models has the lowest overall combined profit level?