Question 1

List four characteristics of monopolistic competition.

Accepted Answer

The answer of List four characteristics of monopolistic competition....

Question 2

Lee, J Brand, Joe's Jeans, Paper Denim & Cloth, Levi's, Wrangler, and many others are all producers of jeans. J Brand jeans sell for $200 a pair. Suppose at the profit maximizing quantity, J Brand's ATC was $220 and AVC was $110, which statement is TRUE?

Accepted Answer

J Brand will produce in the short run because the price ($200) is above the AVC ($110), covering variable costs. However, since the price is below ATC ($220), they are making a loss and will go out of business in the long run if conditions don't change.

Question 3

What do demand and marginal revenue curves look like in monopolistic competition? How do they compare to the demand and marginal revenue curves in perfect competition and monopoly?

Accepted Answer

The answer of What do demand and marginal revenue curves...

Question 4

Which of the following is NOT a true statement about perfectly competitive and monopolistically competitive firms?

Accepted Answer

In a perfectly competitive market, firms face perfectly elastic demand, but in a monopolistically competitive market, firms face a downward-sloping demand curve, not perfectly elastic.

Question 5

The Karaoke Channel Online streams professional-grade karaoke for $9.95 a month. Suppose Karaoke Channel Online has a constant marginal cost of $1 per customer and total fixed cost is $20,000. The profit maximizing number of customers is 10,000. Several competitors start to advertise online. Karaoke Channel Online now spends $5,000 a month on advertising and the profit maximizing number of customers increases to 12,000 and the streaming price remains constant. What is Karaoke Channel Online's total profit before the advertising begins?

Accepted Answer

Before advertising, total revenue is $9.95 * 10,000 = $99,500. Total cost is $20,000 (fixed) + $1 * 10,000 (variable) = $30,000. Profit is $99,500 - $30,000 = $69,500.

Question 6

La Super Rica is a taco stand in Santa Barbara, California. It is popular with the locals and even the late Julia Child found the food delicious. If La Super Rica is making an economic profit, what is the probable outcome in the taco market?

Accepted Answer

When a firm is making an economic profit, it attracts new firms to enter the market, increasing competition and decreasing the demand for the original firm's product.

Question 7

La Super Rica is a taco stand in Santa Barbara, California. It is popular with the locals and even the late Julia Child found the food delicious. Suppose La Super Rica maximizes its profit. If La Super Rica's lunch price is greater than its average total cost, which of the following statements is NOT true?

Accepted Answer

If La Super Rica's lunch price is greater than its average total cost, it does not necessarily mean it is producing at its efficient scale. Efficient scale occurs where average total cost is minimized, which may not be the case here.

Question 8

Agave, Six Feet Under, Globe, Silk, Sotto Sotto and Zocalo are all restaurants in Atlanta. In this monopolistic market, economic profit would encourage ________, which decreases the ________ for each firm's meals.

Accepted Answer

In a monopolistic market, economic profit attracts new firms to enter the market, which increases competition and decreases the demand for each existing firm's meals.

Question 9

Agave, Six Feet Under, Globe, Silk, Sotto Sotto and Zocalo are all restaurants in Atlanta. Suppose at the profit maximizing quantity, Zocalo charges $22 for each dinner entrée, and its ATC is equal to $24. What should Zocalo do?

Accepted Answer

Zocalo is making a loss in the short run, as its ATC is greater than its price. In the long run, it should go out of business, as it is not able to cover its costs.

Question 10

Agave, Six Feet Under, Globe, Silk, Sotto Sotto and Zocalo are all restaurants in Atlanta. In the long run, Globe could I. make a positive economic profit.
II) make zero economic profit.
III) incur an economic loss.

Accepted Answer

The answer of Agave, Six Feet Under, Globe, Silk, Sotto...

Question 11

The Karaoke Channel Online streams professional-grade karaoke for $9.95 a month. Suppose Karaoke Channel Online has a constant marginal cost of $1 per customer and total fixed cost is $20,000. The profit maximizing number of customers is 10,000. Several competitors start to advertise online. Karaoke Channel Online now spends $5,000 a month on advertising and the profit maximizing number of customers increases to 12,000. What is Karaoke Channel Online's average total cost after the advertising begins?

Accepted Answer

The average total cost (ATC) is calculated by adding total fixed costs, total variable costs, and advertising costs, then dividing by the number of customers. After advertising, ATC = ($20,000 + $12,000 + $5,000) / 12,000 = $3.08.

Question 12

What is product differentiation? What market structure is characterized by product differentiation?

Accepted Answer

The answer of What is product differentiation? What market structure...

Question 13

Which of the following four firms would most likely be part of a monopolistically competitive market?

Accepted Answer

Monopolistic competition is characterized by many firms selling similar but not identical products. The jeans producers in option A fit this description, as they offer differentiated products in a competitive market.

Question 14

Agave, Six Feet Under, Globe, Silk, Sotto Sotto and Zocalo are all restaurants in Atlanta. In the short run, Globe could I. make an economic profit.
II) make zero economic profit.
III) incur an economic loss.

Accepted Answer

In the short run, a restaurant like Globe can experience any of the three scenarios: making an economic profit, breaking even (zero economic profit), or incurring an economic loss, depending on factors like demand, costs, and competition.

Question 15

The Karaoke Channel Online streams professional-grade karaoke for $9.95 a month. Suppose Karaoke Channel Online has a constant marginal cost of $1 per customer and total fixed cost is $20,000. The profit maximizing number of customers is 10,000. Several competitors start to advertise online. Karaoke Channel Online now spends $5,000 a month on advertising and the profit maximizing number of customers increases to 12,000. What is Karaoke Channel Online's average total cost before the advertising begins?

Accepted Answer

Before advertising, the average total cost is calculated as (Total Fixed Cost + Total Variable Cost) / Number of Customers. Total Variable Cost is $1 per customer, so for 10,000 customers, it's $10,000. Total cost is $20,000 (fixed) + $10,000 (variable) = $30,000. Average total cost is $30,000 / 10,000 = $3.

Question 16

The market for wheat can be described at perfectly competitive while the market for pizza is better described as monopolistically competitive. Which of the following is a NOT a similarity between perfectly competitive and monopolistically competitive firms?

Accepted Answer

Perfectly competitive firms produce at their efficient scale, but monopolistically competitive firms do not due to product differentiation and excess capacity.

Question 17

La Super Rica is a taco stand in Santa Barbara, California. It is popular with the locals and even the late Julia Child found the food delicious. If La Super Rica is currently producing where marginal revenue is greater than marginal cost, to increase its profit La Super Rica should

Accepted Answer

When marginal revenue is greater than marginal cost, increasing production will increase profit until marginal revenue equals marginal cost.

Question 18

How do the characteristics of perfect competition and monopolistic competition differ?

Accepted Answer

The answer of How do the characteristics of perfect competition...

Question 19

"One of the defining features of monopolistic competition is product variety." Is the previous statement correct or incorrect?

Accepted Answer

The answer of "One of the defining features of monopolistic...

Question 20

The Karaoke Channel Online streams professional-grade karaoke for $9.95 a month. Suppose Karaoke Channel Online has a constant marginal cost of $1 per customer and total fixed cost is $20,000. The profit maximizing number of customers is 10,000. Several competitors start to advertise online. Karaoke Channel Online now spends $5,000 a month on advertising and the profit maximizing number of customers increases to 12,000 and the streaming price remains constant. What is Karaoke Channel Online's total profit after the advertising begins?

Accepted Answer

The answer of The Karaoke Channel Online streams professional-grade karaoke...

Quiz 14: Monopolistic Competition