Question 1

Figure 11-6 
-Refer to Figure 11-6.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 output Q3.

Question 2

According to a Wall Street Journal article,hhgregg has differentiated itself from its competition,particularly from large chain stores such as Best Buy,

Accepted Answer

The article states that hhgregg has differentiated itself by providing better customer service, which sets it apart from large chain stores like Best Buy.

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

Figure 11-7  Figure 11-7 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 11-7.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 11-7  Figure 11-7 shows short-run...

Question 5

Figure 11-6 
-Refer to Figure 11-6.What is the monopolistic competitor's profit maximizing price?

Accepted Answer

The answer of Figure 11-6 
-Refer to Figure 11-6.What is...

Question 6

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 7

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

Accepted Answer

If price is less than average cost, firms are experiencing losses. In the long run, this means that firms will have an incentive to exit the market and search for more profitable opportunities elsewhere. As firms exit, the market supply decreases, which can lead to an increase in price in the long run. Therefore, choice A is the best answer.

Question 8

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 9

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 more firms enter the market, the demand for each individual firm's product will decrease, leading to a more elastic demand curve. In the long run, a monopolistically competitive firm will only earn normal profits, meaning the demand curve will be tangent to its average total cost curve. Thus, choice C is the best answer.

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 long run, new firms will enter the market due to the short-run profits being earned by the existing firms. This will increase competition and shift the demand curve to the left as consumers now have more choices. The increased competition will also make the demand curve more elastic as consumers can now substitute the products of one firm for another.

Question 11

Figure 11-6 
-Refer to Figure 11-6.The diagram depicts a firm

Accepted Answer

The firm is producing at the minimum efficient scale and is earning normal profits, indicating that it is in long run equilibrium.

Question 12

Figure 11-6 
-Refer to Figure 11-6.What is the productively efficient output for the firm represented in the diagram?

Accepted Answer

The answer of Figure 11-6 
-Refer to Figure 11-6.What is...

Question 13

Figure 11-6 
-Refer to Figure 11-6.The firm represented in the diagram

Accepted Answer

The firm represented in the diagram is producing where its average total cost (ATC) is equal to the market price (P). At this level of output, the firm is making only normal profit, which means it is covering all its costs including opportunity costs. Therefore, it is making zero economic profit. Option B is incorrect because the firm is making normal profit, which means it is covering all its costs including accounting costs. Option C is incorrect because the firm is earning normal profit and can continue to operate as long as it covers all its costs including opportunity costs. Option D is incorrect because the diagram indicates that the firm is already producing at its minimum efficient scale, and expanding its output further may actually increase its ATC and reduce its profit.

Question 14

Firms such as Caribou Coffee and Diedrich Coffee operate hundreds of coffeehouses nationwide while firms such as Dunn Brothers Coffee operate only in four states.How would you characterize these stores?

Accepted Answer

All three coffee companies operate in a crowded market with many other competitors, and they differentiate themselves through branding, atmosphere, and product offerings to attract customers. This type of market structure is consistent with monopolistic competition. None of the firms have enough market power to set prices, and there is relatively low barrier to entry for new competitors to enter the market. Therefore, all three firms are best characterized as monopolistic competitors.

Question 15

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

Accepted Answer

In monopolistic competition, barriers to entry are low and it is easy for other firms to enter the market. If a typical firm is making short-run losses, some less efficient firms may leave the market, which decreases the supply and increases the price of the product. As a result, the remaining firms will experience an increase in the demand for their products and may start making profits in the long-run. Therefore, option B is the correct choice. Option A could be correct in the long-run, but the question specifically asked about short-run losses. Option C is incorrect because the demand for the products of remaining firms will become less elastic as there are fewer substitutes available due to the exit of some firms from the market. Option D is also incorrect because there is no reason for the industry to cease to exist if some firms leave and the remaining firms can make profits in the long-run.

Question 16

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 the long run, new firms enter the market and offer similar products, increasing competition. This leads some customers to switch to purchasing the product of new entrants, reducing demand for the original firm's product. Therefore, choice C is the best answer. The other choices are not as relevant in explaining why the demand for the product of the monopolistically competitive firm will decrease in the long run.

Question 17

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

Accepted Answer

In monopolistic competition, there are no barriers to entry or exit, which means that new firms can enter the market easily. As new firms enter and produce similar but differentiated products, competition increases, and firms are forced to lower their prices to stay competitive. This competition drives down profits, and in the long run, most firms will only make enough profit to cover their costs, resulting in zero economic profit. Thus, the lack of entry barriers would compete away profits.

Question 18

Figure 11-6 
-Refer to Figure 11-6.What is the amount of excess capacity?

Accepted Answer

Excess capacity is the difference between Q₄ (the capacity that the firm has) and Q₂ (the minimum capacity needed to cover its average costs). Therefore, the amount of excess capacity is Q₄ - Q₂ units, which is option B.

Question 19

Figure 11-6 
-Refer to Figure 11-6.What is the monopolistic competitor's profit maximizing output?

Accepted Answer

In monopolistic competition, the profit-maximizing output is where marginal cost (MC) equals marginal revenue (MR). Typically, this is represented by Q2 in diagrams where the MC and MR curves intersect.

Question 20

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...

Quiz 11: Monopolistic Competition and Oligopoly

Figure 11-6 -Refer to Figure 11-6.What is the allocatively efficient output for the firm represented in the diagram?

According to a Wall Street Journal article,hhgregg has differentiated itself from its competition,particularly from large chain stores such as Best Buy,

If a monopolistically competitive firm breaks even,the firm

Figure 11-7 Figure 11-7 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-7.If the diagram represents a typical firm in the designer watch market,what is likely to happen in the long run?

Figure 11-6 -Refer to Figure 11-6.What is the monopolistic competitor's profit maximizing price?

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

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

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

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

Figure 11-6 -Refer to Figure 11-6.The diagram depicts a firm

Figure 11-6 -Refer to Figure 11-6.What is the productively efficient output for the firm represented in the diagram?

Figure 11-6 -Refer to Figure 11-6.The firm represented in the diagram

Firms such as Caribou Coffee and Diedrich Coffee operate hundreds of coffeehouses nationwide while firms such as Dunn Brothers Coffee operate only in four states.How would you characterize these stores?

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

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?

Figure 11-6 -Refer to Figure 11-6.What is the amount of excess capacity?

Figure 11-6 -Refer to Figure 11-6.What is the monopolistic competitor's profit maximizing output?