Question 1

Sparkle,one of many firms in the market for toothpaste,is in long-run equilibrium.Sparkle has a small market share and has been in business for a long time.
a.Identify the market structure in which Sparkle operates.Explain your answer.
b.What is Sparkle's profit or loss? Explain your answer.If you cannot determine the profit or loss,explain what information is missing.
c.Draw a diagram showing Sparkle's demand curve,marginal revenue curve,average total cost curve and marginal cost curve.Label your diagram.

Accepted Answer

The answer of Sparkle,one of many firms in the market...

Question 2

Monopolistically competitive firms have downward-sloping demand curves.In the long run,monopolistically competitive firms earn zero economic profits.These two characteristics imply that in the long run,
A)monopolistically competitive markets achieve productive efficiency.
B)monopolistically competitive markets achieve allocative efficiency.
C)monopolistically competitive firms earn economic profits.
D)monopolistically competitive firms have excess capacity.

Accepted Answer

In the long run, monopolistically competitive firms have excess capacity which means they are not producing at the minimum efficient scale. This implies that they are not achieving productive efficiency. Moreover, since they earn zero economic profits, they are not achieving allocative efficiency either. Therefore, the best choice is D.

Question 3

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?
A)P = ATC and MR = MC.
B)P = ATC and P = MC.
C)P > ATC and P > MR.
D)P > MR and MC = ATC.

Accepted Answer

In long-run equilibrium, a monopolistically competitive firm will produce at the minimum point of the ATC curve. This means that P = ATC. Additionally, in order to maximize profits, the firm will produce where MR = MC. Therefore, P = MR = MC = ATC in long-run equilibrium for a monopolistically competitive firm.

Question 4

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm
A)expands its marketing budget.
B)adopts new technologies that enable it to lower its cost of production.
C)expands its product offerings to appeal to a wider range of consumers.
D)reduces its price to expand its market.

Accepted Answer

In monopolistic competition, firms can earn economic profits in the short run due to product differentiation, but market forces will eventually eliminate those profits in the long run as other firms enter the market with similar products. However, a firm can continue to earn economic profits if it adopts new technologies that enable it to lower its cost of production, making it more competitive and potentially allowing it to charge lower prices or increase profit margins. Expanding marketing budget, product offerings, or reducing price may increase sales, but they do not necessarily address the root issue of profitability.

Question 5

Excess capacity is a characteristic of monopolistically competitive firms.What does excess capacity mean?
A)It means that firms do not produce the output level that corresponds to the minimum point on their average total cost curves.
B)It means that firms hire more than the minimum number of workers needed to produce the profit-maximizing level of output.
C)It means that firms produce with inefficient combinations of resources.
D)It means that firms build plants that are not large enough to achieve minimum efficient scale.

Accepted Answer

Excess capacity refers to the gap between a firm's actual output and the output level that would correspond to the minimum point on its average total cost curve. In other words, firms with excess capacity could produce more output at a lower cost, but choose not to do so in order to differentiate their products and maintain their market power.

Question 6

If a store like hhgregg has higher costs than a comparable Best Buy store,the only way it can have higher profits is if
A)it has more locations than Best Buy.
B)its marginal revenue is lower than Best Buy's.
C)the demand for its goods is higher than Best Buy's.
D)it sells the quantity associated with its minimum average total cost.

Accepted Answer

The answer of If a store like hhgregg has higher...

Question 7

Despite being in a market with ________,from the mid-1990s to the mid-2000s Starbucks was able to significantly differentiate its products from the products of its competitors.
A)few barriers to entry
B)significant barriers to entry
C)blocked entry
D)no barriers to entry

Accepted Answer

The answer of Despite being in a market with ________,from...

Question 8

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is
A)more elastic because there are many close substitutes for the product of a monopolistically competitive firm.
B)less elastic because monopolistically competitive firms produce similar,but not identical,products.
C)just as elastic because there are many sellers in both markets.
D)more elastic because in the long run,the demand curve is tangent to the firm's average total cost curve.

Accepted Answer

The answer of Compared to a perfectly competitive firm,the demand...

Question 9

In contrast with perfect competition,excess capacity characterizes monopolistic competition.Excess capacity is due to which of the following?
A)Monopolistically competitive firms produce at the minimum point on their average total cost curves.
B)Monopolistically competitive firms face downward-sloping demand curves.In the long run,firms produce where their demand curves are tangent to their long-run average total cost curves.
C)Monopolistically competitive firms produce where marginal revenue is equal to marginal cost.
D)Monopolistically competitive markets have low barriers to entry.

Accepted Answer

In the long run, monopolistically competitive firms produce where their demand curves are tangent to their long-run average total cost curves. This results in excess capacity, meaning that firms could produce more output at a lower average cost, but choose not to in order to maximize profit. This is due to the fact that their demand curve is downward-sloping, meaning that they can increase their price without losing all their customers. Therefore, they choose to produce less output than what would minimize their average cost.

Question 10

In both monopolistically competitive and perfectly competitive industries
A)firms produce products for which there are no close substitutes.
B)there are high barriers to entry.
C)there are many buyers and sellers.
D)firms are price takers.

Accepted Answer

The answer of In both monopolistically competitive and perfectly competitive...

Question 11

A monopolistically competitive firm can increase its profits beyond the long-run equilibrium break-even level by deliberately lowering its price to force some of its competitors out of the market.

Accepted Answer

The answer of A monopolistically competitive firm can increase its...

Question 12

When a monopolistically competitive firm breaks even in the long run,this is equivalent to earning a zero accounting profit.

Accepted Answer

The answer of When a monopolistically competitive firm breaks even...

Question 13

A monopolistically competitive firm that is profitable in the short run will face competition that will eventually eliminate the firm's profits in the long run.But the firm can stave off competition and continue to earn economic profits if
A)it can successfully sue its competitors for copyright infringement.
B)it can move to another country where there is less competition.
C)it can lobby the government to establish a price floor for its product.
D)it can find new ways to differentiate its product.

Accepted Answer

The most viable option for a monopolistically competitive firm to continue earning economic profits in the long run is to find new ways to differentiate its product. By doing so, the firm can maintain a degree of market power and avoid intense competition. However, it is important to note that this strategy is not foolproof and may not guarantee long-term profitability if competitors catch up and replicate the differentiation.

Question 14

Which of the following statements is true about monopolistically competitive firms?
A)Unlike perfectly competitive firms,monopolistically competitive firms are able to raise their prices without losing all of their customers.
B)Like perfectly competitive firms,monopolistically competitive firms are not able to raise prices without losing all of their customers because they face competition from firms selling similar products.
C)Like perfectly competitive firms,monopolistically competitive firms maximize their profits by settling price equal to marginal cost.
D)Unlike perfectly competitive firms,monopolistically competitive face perfectly inelastic demand curves.

Accepted Answer

The answer of Which of the following statements is true...

Question 15

What effect does the entry of new firms in a monopolistically competitive market have on the economic profits of existing firms in the market? How might existing firms attempt to counteract this effect?

Accepted Answer

The answer of What effect does the entry of new...

Question 16

If some monopolistically competitive firms exit their market after suffering short-run losses,the demand curves of remaining firms will shift to the right.

Accepted Answer

If some firms exit the market, the market supply decreases, leading to an increase in price. This increase in price causes an increase in demand for the remaining firms, shifting their demand curves to the right.

Question 17

The table below shows the demand and cost data facing "Velvet Touches," a monopolistically competitive producer of velvet throw pillows.
  Use the data to answer the following questions.
a.Complete the Total Revenue (TR),Marginal Revenue (MR)and Marginal Cost (MC)columns above.
b.What are the profit-maximizing price and quantity for Velvet Touches?
c.Is the firm making a profit or a loss? How much is the profit or loss? Show your work.
d.Is this firm operating in the long run or in the short run? Explain your answer.
e.If the firm's profit or loss is typical of all firms in the market for throw pillows,what is likely to happen in the future? Will there be more firms or will some existing firms leave the industry? Explain your answer.
f.What will happen to the typical firm's profit or loss after all entry/exit adjustments?

Accepted Answer

The answer of The table below shows the demand and...

Question 18

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?
A)Marginal revenue is equal to marginal cost.
B)Price is equal to average revenue.
C)The firm has excess capacity.
D)Price is equal to marginal cost.

Accepted Answer

In monopolistic competition, firms have some degree of market power, meaning they are able to charge a price that is higher than their marginal cost. Therefore, in long-run equilibrium, price will be higher than marginal cost (not equal to it). This makes option D the incorrect choice. Choice A is a characteristic of long-run equilibrium for all firms, including monopolistically competitive firms. Choice B is also true, as the price in a monopolistically competitive firm will be equal to its average revenue. Choice C is another characteristic of monopolistic competition in the long run, as firms will produce at a quantity that is less than the minimum efficient scale, resulting in excess capacity.

Question 19

In the long run firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits,but unlike perfectly competitive firms in the long run,monopolistically competitive firms
A)charge a price that is greater than average revenue.
B)charge a price that is equal to marginal cost.
C)do not produce at minimum average total cost.
D)charge a price that is equal to average total cost.

Accepted Answer

Monopolistically competitive firms do not produce at minimum average total cost in the long run because they have some market power, which allows them to differentiate their products and charge higher prices. This means they will always have some level of excess capacity and will not be able to produce at the most efficient scale. Therefore, they will not earn economic profits but will still charge a price that is greater than their marginal cost. This is different from perfectly competitive firms, which produce at minimum average total cost in the long run and earn zero economic profits by charging a price equal to their marginal cost.

Question 20

Which of the following will not happen as a consequence of a monopolistically competitive firm suffering economic losses in the short run?
A)The firm's demand curve will shift to the right if it stays in business in the long run.
B)The firm will exit the industry if it continues to suffer economic losses.
C)The firm will break even if its stays in business in the long run.
D)In the long run the firm will be able to charge a price that is greater than its average total cost.

Accepted Answer

In the long run of monopolistic competition, firms will not be able to charge a price greater than their average total cost due to the presence of close substitutes and freedom of entry and exit in the market. Therefore, option D is false and will not happen as a consequence of economic losses.

Quiz 13: Monopolistic Competition: the Competitive Model in a More Realistic Setting

Monopolistically competitive firms have downward-sloping demand curves.In the long run,monopolistically competitive firms earn zero economic profits.These two characteristics imply that in the long run,

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm

Excess capacity is a characteristic of monopolistically competitive firms.What does excess capacity mean?

If a store like hhgregg has higher costs than a comparable Best Buy store,the only way it can have higher profits is if

Despite being in a market with ________,from the mid-1990s to the mid-2000s Starbucks was able to significantly differentiate its products from the products of its competitors.

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is

In contrast with perfect competition,excess capacity characterizes monopolistic competition.Excess capacity is due to which of the following?

In both monopolistically competitive and perfectly competitive industries

A monopolistically competitive firm can increase its profits beyond the long-run equilibrium break-even level by deliberately lowering its price to force some of its competitors out of the market.

When a monopolistically competitive firm breaks even in the long run,this is equivalent to earning a zero accounting profit.

A monopolistically competitive firm that is profitable in the short run will face competition that will eventually eliminate the firm's profits in the long run.But the firm can stave off competition and continue to earn economic profits if

Which of the following statements is true about monopolistically competitive firms?

What effect does the entry of new firms in a monopolistically competitive market have on the economic profits of existing firms in the market? How might existing firms attempt to counteract this effect?

If some monopolistically competitive firms exit their market after suffering short-run losses,the demand curves of remaining firms will shift to the right.

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium?

In the long run firms in both monopolistically competitive markets and perfectly competitive markets earn zero economic profits,but unlike perfectly competitive firms in the long run,monopolistically competitive firms

Which of the following will not happen as a consequence of a monopolistically competitive firm suffering economic losses in the short run?