Question 1

-Refer to Table 13-1. What is the marginal revenue of the 3rd unit?

Accepted Answer

The marginal revenue of the 3rd unit is calculated by the change in total revenue when the third unit is sold. Without the specific values from Table 13-1, the general approach is to subtract the total revenue after selling 2 units from the total revenue after selling 3 units. Assuming a typical downward-sloping demand curve, the marginal revenue tends to decrease with each additional unit sold due to the need to lower the price to sell more units. Therefore, without the exact figures from Table 13-1, the correct answer cannot be precisely determined, but the approach described is how one would calculate it given the necessary data.

Question 2

Which of the following characterizes the market that Intelligentsia competes in?

Accepted Answer

Intelligentsia competes in a market with low barriers to entry, meaning it's relatively easy for new competitors to start a business in the coffeehouse industry. This is due to the minimal capital required to open a coffeehouse and the availability of resources and technology.

Question 3

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?

Accepted Answer

In a perfectly competitive market, a firm's marginal revenue curve is the same as its demand curve because the firm is a price taker and can sell any quantity at the market price. In contrast, a monopolistically competitive firm faces a downward-sloping demand curve, meaning it can sell more only by lowering its price. This causes the marginal revenue curve to lie below the demand curve, as each additional unit sold adds less revenue than the previous unit.

Question 4

Complete the following table.

Accepted Answer

The answer of Complete the following table.
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Question 5

-Refer to Figure 13-9. Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits?

Accepted Answer

In a monopolistically competitive market, a firm earns economic profits when its average total cost (ATC) is below the price at which it sells its product. Panel A likely shows this scenario, where the price is above the ATC curve at the profit-maximizing quantity.

Question 6

Central Grocery in New Orleans is famous for its muffaletta, a large round sandwich filled with deli meats and topped with a tangy olive salad. Suppose the following table represents cost and revenue data for Central Grocery.

Illustrate this data by graphing the demand, MR, MC, and ATC curves. Identify the profit-maximizing price and quantity, and show the area representing the total profit received by Central Grocery.

Accepted Answer

The answer of Central Grocery in New Orleans is famous...

Question 7

Central Grocery in New Orleans is famous for its muffaletta, a large round sandwich filled with deli meats and topped with a tangy olive salad. Suppose the following table represents cost and revenue data for Central Grocery. Fill in the columns for TR, MR, MC, ATC, and profit. If Central Grocery wants to maximize profits, what price should it charge for a muffaletta, what quantity should it sell, and what will be the amount of its total profit?

Accepted Answer

The answer of Central Grocery in New Orleans is famous...

Question 8

If the strategy of selling artisanal coffee succeeds and customers are willing to pay higher prices for this higher-end coffee, third wave coffeehouses will

Accepted Answer

Third wave coffeehouses, if successful, will attract competitors due to the economic profits generated from selling higher-end coffee. Over time, as more competitors enter the market offering similar artisanal coffee, the increased competition will lead to a decrease in economic profits for all players, aligning with the principles of monopolistic competition.

Question 9

If Amazon is successful with its Amazon Go convenience store concept, these Amazon Go convenience stores

Accepted Answer

The concept of economic profits being competed away in the long run is a fundamental principle of perfect competition. In the short run, a firm can earn economic profits due to innovation, unique positioning, or efficiencies. However, as other firms enter the market attracted by these profits, competition increases, leading to a decrease in prices and profits until only normal profits are earned, where total revenues equal total costs, including opportunity costs.

Question 10

-Refer to Figure 13-13. What is the area that represents the firm's total cost?

Accepted Answer

The answer of 
-Refer to Figure 13-13. What is the...

Question 11

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 12

How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

Accepted Answer

In the long run, monopolistically competitive firms do not produce at the lowest point on their average cost curve due to excess capacity, unlike perfectly competitive firms which produce at the lowest average cost.

Question 13

UK-based cosmetics retailer Lush has begun opening stores which they are calling "Naked", where customers can purchase their products free of any plastic packaging. The company, which is already 100% vegetarian and against animal testing, is trying out this concept as a way to allow customers to buy its products without harming the environment. According to Emily Salter, an analyst at Global Data Retail, Lush has recognized that there is demand for packaging-free products and is the first mass market retailer to try this approach. The company also hopes that other retailers will follow their lead in an effort to eliminate plastic from the retail industry. Salter believes that the way that retailers will become plastic-free is through pressure from both consumers and competitors.
Source: Anna Schaverien, "Lush Creates Packaging-Free Shops. But Will Other Retailers Follow Suit?," Forbes, March 12, 2019.
-Refer to the Article Summary. By marketing to environmentally conscious customers, Lush is trying to set its business apart from competing cosmetic retailers. This is an example of

Accepted Answer

Lush is using the strategy of product differentiation by offering packaging-free products to appeal to environmentally conscious customers, setting its business apart from competitors in the cosmetic retail industry.

Question 14

UK-based cosmetics retailer Lush has begun opening stores which they are calling "Naked", where customers can purchase their products free of any plastic packaging. The company, which is already 100% vegetarian and against animal testing, is trying out this concept as a way to allow customers to buy its products without harming the environment. According to Emily Salter, an analyst at Global Data Retail, Lush has recognized that there is demand for packaging-free products and is the first mass market retailer to try this approach. The company also hopes that other retailers will follow their lead in an effort to eliminate plastic from the retail industry. Salter believes that the way that retailers will become plastic-free is through pressure from both consumers and competitors.
Source: Anna Schaverien, "Lush Creates Packaging-Free Shops. But Will Other Retailers Follow Suit?," Forbes, March 12, 2019.
-Refer to the Article Summary. By marketing to environmentally conscious customers, Lush is trying to set its business apart from competing cosmetic retailers. All else equal, if the company's concept remains successful, in the long run we would expect Lush to experience

Accepted Answer

If Lush's concept proves successful and sets the business apart by appealing to environmentally conscious customers, other retailers are likely to adopt similar practices to compete, leading to increased competition. Over time, this could erode Lush's initial advantage and lead to lower economic profits as the market adjusts to the new norm of packaging-free products.

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