Question 1

Suppose a government-imposed lump-sum tax on every firm in a monopolistically competitive industry shifts up the average total cost curve without affecting marginal cost. What will happen to the equilibrium number of firms, the quantity produced in the industry, and the long-run price of this industry's product?

Accepted Answer

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Question 2

Explain why collusion is likely in an industry in which it is difficult to get information about transactions and the market, the market operates on a continual basis, and there are a few sellers.

Accepted Answer

The answer of Explain why collusion is likely in an...

Question 3

There are three gas stations at the corner of your street. You always drive to one particular station to purchase your gas but never buy gas from the other two. In what market structure are the gas stations operating in this location? Why?

Accepted Answer

The answer of There are three gas stations at the...

Question 4

Use a diagram to explain why a monopolistically competitive industry is not as efficient as a competitive industry, even though firms do not earn an economic profit when their industries are in long-run equilibrium.

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Question 5

Consider a McDonald's restaurant that sells hamburgers in a small town alongside a few other fast-food restaurants.

Accepted Answer

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Question 6

Suppose a monopolistically competitive industry has 8 firms with identical costs.

Accepted Answer

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Question 7

How can the member countries of OPEC, an international oil cartel, ensure that it earns the largest possible profit? Why is this outcome not likely to be reached? If this outcome is not reached, then how will the deadweight loss in the market be affected?

Accepted Answer

The answer of How can the member countries of OPEC,...

Question 8

Firm X and firm Y are the only two Internet providers in a small town. The demand for Internet subscriptions is P = 60 - Q. Neither firm X nor firm Y has any fixed costs. The marginal cost of firm X is constant at $10, and the marginal cost of firm Y is constant at $20. Each firm can sell either 10 or 20 subscriptions, and they meet only once in this market.

Accepted Answer

The answer of Firm X and firm Y are the...

Question 9

Suppose two small-town video stores, store A and store B, compete. The two stores collude and agree to share the market equally. If neither store cheats on the agreement, each store will make $2,500 a day in economic profits. If only one store cheats, the cheater will increase its economic profits to $4,000 and the store that abides by the agreement will incur an economic loss of $1,000. If both firms cheat, they both will earn zero economic profits. Neither store has any way of policing the actions of the other.

Accepted Answer

The answer of Suppose two small-town video stores, store A...

Quiz 11: Product Differentiation, Monopolistic Competition, and Oligopoly