Question 1

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.

Accepted Answer

The answer of Suppose a monopolistically competitive firm sells 25...

Question 2

The demand curve of a monopolistically competitive firm

Accepted Answer

The demand curve of a monopolistically competitive firm is downward-sloping because it must cut its price to sell more. This is because the firm faces competition from other firms that offer similar products or substitutes, so it cannot simply raise its price without losing customers to these other options. As a result, the firm must lower its price to attract more customers, which leads to a downward-sloping demand curve.

Question 3

One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?

Accepted Answer

The answer of One of the assumptions of monopolistic competition...

Question 4

Every firm that has the ability to affect the price of the good or service it sells will

Accepted Answer

If a firm can affect the price of the good or service it sells, then it has some market power, which means that its demand curve is downward sloping. However, because the firm is not a price taker, its marginal revenue curve will lie below its demand curve. This implies that the firm will have to lower its price to sell more units, and each additional unit sold will generate less revenue than the previous one. Therefore, the firm will only be able to maximize profit by producing at the point where marginal cost equals marginal revenue, which will be less than the price charged. This will result in a short-run profit. However, in the long run, new firms may enter the market, which will increase competition and lower prices. Therefore, the firm will break even in the long run, earning only a normal profit.

Question 5

Explain the differences between total revenue,average revenue,and marginal revenue.

Accepted Answer

The answer of Explain the differences between total revenue,average revenue,and...

Question 6

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Accepted Answer

When a monopolistically competitive firm cuts its price, it may experience a gain in revenue due to increased sales (substitution effect), but it will not necessarily experience a loss in revenue due to the income effect. The income effect refers to the change in quantity demanded resulting from a change in real income (purchasing power). In the case of a price cut, the consumer's real income increases, which could potentially offset the revenue loss from the price cut. However, the overall effect on revenue will depend on the specific situation and market conditions.

Question 7

There are many cattle ranchers in the world,and there are also many McDonald's restaurants in the world.Why,then,does a McDonald's restaurant face a downward-sloping demand curve while a cattle rancher faces a horizontal demand curve?

Accepted Answer

The answer of There are many cattle ranchers in the...

Question 8

For a downward-sloping demand curve,marginal revenue decreases as quantity sold increases.

Accepted Answer

When the demand curve is downward-sloping, to sell more units, the market price must be lowered, which results in a lower marginal revenue for each additional unit sold. Therefore, marginal revenue decreases as quantity sold increases.

Question 9

Complete the following table.
 $\begin{array}{|c|c|l|l|l|}
\hline\begin{array}{l} 
\text {Energy}\
\text { Drinks } \
\text { Consumed } \
\text { per Week }
\end{array} & \text { Price }(\boldsymbol{P}) & \begin{array}{l}
\text { Total } \
\text { Revenue } \
(T R)
\end{array} & \begin{array}{l}
\text { Average } \
\text { Revenue }(\boldsymbol{A R})
\end{array} & \begin{array}{l}
\text { Marginal } \
\text { Revenue } \
(\boldsymbol{M R})
\end{array} \
\hline 0 & \$ 6.00 & & & \
\hline 1 & 5.50 & & & \
\hline 2 & 5.00 & & & \
\hline 3 & 4.50 & & & \
\hline 4 & 4.00 & & & \
\hline 5 & 3.50 & & & \
\hline 6 & 3.00 & & & \
\hline 7 & 2.50 & & & \
\hline 8 & 2.00 & & & \
\hline
\end{array}$

Accepted Answer

The answer of Complete the following table.
 \(\begin{array}{|c|c|l|l|l|}
\hline\begin{array}{l} 
\text {Energy}\
\text...

Question 10

If marginal revenue is negative then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

Accepted Answer

If marginal revenue is negative, it means that each additional unit sold is decreasing total revenue. Therefore, selling one more unit of the good would result in even more revenue loss, making the revenue lost from receiving a lower price on all units greater than the additional revenue from selling one more unit.

Question 11

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Accepted Answer

Monopolistically competitive markets are characterized by low barriers to entry, allowing new firms to easily enter and compete with existing firms. This is because there are no significant barriers to entry, such as high start-up costs or exclusive access to resources, that would prevent new firms from entering the market.

Question 12

The marginal revenue of a monopolistically competitive firm

Accepted Answer

The marginal revenue of a monopolistically competitive firm can be negative if the firm charges a low price. This is because in a monopolistically competitive market, there are substitutes available, and if the firm lowers its price, it may not increase its revenue enough to compensate for the decrease in price, resulting in negative marginal revenue. Choices A and D are incorrect because the price the firm charges and the average revenue may both be less than zero or negative. Answer B is incorrect because a high price may still result in positive marginal revenue if the demand for the product is high enough.

Question 13

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases then

Accepted Answer

In a monopolistically competitive market, a firm's demand curve is downward sloping, so when it lowers its price, the quantity demanded will increase, which represents the output effect. However, the price effect will make the price reduction apply to all units of output sold, decreasing the firm's total revenue. If the output effect is less than the price effect, the total revenue will decrease. Therefore, the correct answer is A- the output effect of the price change was less than the price effect.

Question 14

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market,but by separate curves for a firm in a monopolistically competitive market?

Accepted Answer

The answer of Why are demand and marginal revenue represented...

Question 15

Suppose that if a local McDonald's restaurant reduces the price of a Big Mac from $4.00 to $3.25,the number of Big Macs it sells per day will increase from 4 to 5.Explain the output effect and the price effect resulting from this change.Using a graph,illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac.What is the total change in revenue received which results from this price decrease?

Accepted Answer

The answer of Suppose that if a local McDonald's restaurant...

Question 16

Monopolistically competitive firms face a perfectly elastic demand curve.

Accepted Answer

Monopolistically competitive firms face a downward-sloping demand curve, not a perfectly elastic one.

Question 17

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Accepted Answer

In monopolistic competition, there are many competing firms with similar products but slight differences, leading to a somewhat elastic demand for each firm's product. Therefore, if a firm raises its price, consumers may switch to a competitor's product with a similar feature, leading to a loss of customers for the firm.

Question 18

Which of the following statements is true?

Accepted Answer

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

Question 19

Firms in monopolistic competition compete by selling similar,but not identical products.

Accepted Answer

In monopolistic competition, firms differentiate their products from each other in order to create a perceived difference or preference among consumers. This means that their products are similar to each other, but not identical.

Question 20

What are the most important differences between perfectly competitive markets and monopolistically competitive markets?

Accepted Answer

The answer of What are the most important differences between...

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