Question 1

Table 11.1
 $\begin{array}{|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 7.50 & \$ 7.50 \
\hline 2 & 7.00 & 14.00 \
\hline 3 & 6.50 & 19.50 \
\hline 4 & 6.00 & 24.00 \
\hline 5 & 5.50 & 27.50 \
\hline 6 & 5.00 & 30.00 \
\hline
\end{array}$
-Refer to Table 11.1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

Accepted Answer

The answer of Table 11.1
 \(\begin{array}{|c|c|c|}
\hline \text { Quantity }...

Question 2

Table 11.2
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 75 & \$ 75 & \$ 60 \
\hline 2 & 70 & 140 & 85 \
\hline 3 & 65 & 195 & 105 \
\hline 4 & 60 & 240 & 115 \
\hline 5 & 55 & 275 & 130 \
\hline 6 & 50 & 300 & 155 \
\hline 7 & 45 & 315 & 190 \
\hline 8 & 40 & 320 & 230 \
\hline 9 & 35 & 315 & 280 \
\hline
\end{array}$ 
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11.2 shows the firm's demand and cost schedules.
-Refer to Table 11.2.What is the marginal profit from producing and selling the 5th case?

Accepted Answer

To find the marginal profit from producing and selling the 5th case, we need to calculate the change in total revenue and total cost from selling the 5th case compared to selling the 4th case.

Change in total revenue = Total revenue from selling 5th case - Total revenue from selling 4th case 
= 275 - 240 
= 35

Change in total cost = Total cost of producing and selling 5th case - Total cost of producing and selling 4th case 
= 130 - 115 
= 15

Marginal profit = Change in total revenue - Change in total cost 
= 35 - 15 
= 20

Therefore, the marginal profit from producing and selling the 5th case is $20.

The best choice is to produce and sell the 5th case because the marginal profit from producing and selling it is positive.

Question 3

A monopolistically competitive firm maximizes profit where

Accepted Answer

In monopolistic competition, firms have some market power to set their own price due to product differentiation. As a result, the firm's demand curve is downward-sloping, meaning that to sell more units of output, the firm must lower its price. Therefore, the optimal price and output level for a monopolistically competitive firm is where marginal revenue (MR) equals marginal cost (MC). However, since MR is typically lower than the price, the profit-maximizing price will be greater than MC, leading to a markup over cost. This means that answer choice A, where price equals MR, cannot be correct. Similarly, answer choice C, where MR is greater than average revenue (AR), is also incorrect because AR is always above the MR curve in a monopolistically competitive market. Finally, answer choice D, where total revenue is greater than MC, is not the optimal choice because total revenue maximization does not take into account the cost side of the equation. The goal of a firm is to maximize profit, not just revenue. Therefore, the best choice is answer choice B, where price is greater than MC, but where the marginal revenue from selling one more unit is equal to the cost of producing that unit.

Question 4

Figure 11.3
  
Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 11.3.What is the area that represents the total revenue made by the firm?

Accepted Answer

The answer of Figure 11.3
  
Figure 11.3 shows short-run...

Question 5

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 6

What is the profit-maximizing rule for a monopolistically competitive firm?

Accepted Answer

A monopolistically competitive firm seeks to maximize profit by producing a quantity such that marginal revenue equals marginal cost. This is because MR = MC is the point where the firm earns the most profit. At any other point, either producing more or less will lead to a lower profit. Therefore, the profit-maximizing rule for a monopolistically competitive firm is to produce a quantity such that marginal revenue equals marginal cost.

Question 7

Figure 11.3
  
Figure 11.3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 11.3.If the firm represented in the diagram is currently producing and selling Qₐ units, what is the price charged?

Accepted Answer

The answer of Figure 11.3
  
Figure 11.3 shows short-run...

Question 8

-Refer to Figure 11.2.The marginal revenue from selling the additional unit Qb instead of Qₐ equals E.

Accepted Answer

The answer of 
-Refer to Figure 11.2.The marginal revenue from...

Question 9

Unlike a perfectly competitive firm, for a monopolistically competitive firm

Accepted Answer

The answer of Unlike a perfectly competitive firm, for a...

Question 10

Table 11.1
 $\begin{array}{|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 7.50 & \$ 7.50 \
\hline 2 & 7.00 & 14.00 \
\hline 3 & 6.50 & 19.50 \
\hline 4 & 6.00 & 24.00 \
\hline 5 & 5.50 & 27.50 \
\hline 6 & 5.00 & 30.00 \
\hline
\end{array}$
-Refer to Table 11.1.What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?

Accepted Answer

The output effect is the additional revenue generated by selling an additional unit of output. In this case, the output effect of the 4th unit is $6.00 ($30.00 - $24.00).

The price effect is the reduction in revenue from selling all units at a lower price. In this case, the price effect of the 4th unit is -$1.50 (the decrease in price from $6.50 to $6.00 multiplied by the quantity sold after the price change, which is 1).

Therefore, the marginal revenue of the 4th unit is composed of $6.00 from the output effect and -$1.50 from the price effect, for a total marginal revenue of $4.50.

To find the best choice, we need to look for a combination of price and quantity that maximizes total revenue. From the table, we can see that the quantity that maximizes revenue is 5 units (where revenue is $27.50) and the corresponding price is $5.50. Therefore, the best choice is to sell 5 units at $5.50 each.

Question 11

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

Accepted Answer

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

Question 12

-Refer to Figure 11.1.The marginal revenue from the increase in price from P₀ to P₁ equals

Accepted Answer

The answer of 
-Refer to Figure 11.1.The marginal revenue from...

Question 13

Table 11.2
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 75 & \$ 75 & \$ 60 \
\hline 2 & 70 & 140 & 85 \
\hline 3 & 65 & 195 & 105 \
\hline 4 & 60 & 240 & 115 \
\hline 5 & 55 & 275 & 130 \
\hline 6 & 50 & 300 & 155 \
\hline 7 & 45 & 315 & 190 \
\hline 8 & 40 & 320 & 230 \
\hline 9 & 35 & 315 & 280 \
\hline
\end{array}$ 
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11.2 shows the firm's demand and cost schedules.
-Refer to Table 11.2.What is likely to happen to the product's price in the long run?

Accepted Answer

In monopolistically competitive markets, firms can only earn normal profits in the long run due to free entry and exit of firms. As Eco Energy is currently earning economic profit (total revenue exceeds total cost), new firms will enter the market and compete with Eco Energy. This increased competition will lead to a decrease in demand for Eco Energy's product, causing its price to fall in the long run.

Question 14

Table 11.2
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 75 & \$ 75 & \$ 60 \
\hline 2 & 70 & 140 & 85 \
\hline 3 & 65 & 195 & 105 \
\hline 4 & 60 & 240 & 115 \
\hline 5 & 55 & 275 & 130 \
\hline 6 & 50 & 300 & 155 \
\hline 7 & 45 & 315 & 190 \
\hline 8 & 40 & 320 & 230 \
\hline 9 & 35 & 315 & 280 \
\hline
\end{array}$ 
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11.2 shows the firm's demand and cost schedules.
-Refer to Table 11.2.What is Eco Energy's profit?

Accepted Answer

To calculate the profit, we need to find the difference between total revenue and total cost at each quantity level. 
Profit = Total Revenue - Total Cost
At quantity level 1, profit = $75 - $60 = $15
At quantity level 2, profit = $140 - $85 = $55
At quantity level 3, profit = $195 - $105 = $90
At quantity level 4, profit = $240 - $115 = $125
At quantity level 5, profit = $275 - $130 = $145
At quantity level 6, profit = $300 - $155 = $145
At quantity level 7, profit = $315 - $190 = $125
At quantity level 8, profit = $320 - $230 = $90
At quantity level 9, profit = $315 - $280 = $35
The highest profit is $145, which occurs at both quantity level 5 and 6. So the best choice is to produce either 5 or 6 cases of Power On.

Question 15

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

Accepted Answer

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

Question 16

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 the additional revenue from selling one more unit of the good is less than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. Therefore, the statement in the question is false.

Question 17

Table 11.2
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 75 & \$ 75 & \$ 60 \
\hline 2 & 70 & 140 & 85 \
\hline 3 & 65 & 195 & 105 \
\hline 4 & 60 & 240 & 115 \
\hline 5 & 55 & 275 & 130 \
\hline 6 & 50 & 300 & 155 \
\hline 7 & 45 & 315 & 190 \
\hline 8 & 40 & 320 & 230 \
\hline 9 & 35 & 315 & 280 \
\hline
\end{array}$ 
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11.2 shows the firm's demand and cost schedules.
-Refer to Table 11.2.What is the output (Q)that maximizes profit and what is the price (P)charged?

Accepted Answer

To maximize profit, we need to find the quantity at which MR=MC. Based on the table, when 6 cases of Power On are produced, the total revenue is \$300 and the total cost is \$155. At the quantity of 6 cases, the marginal revenue is \$50 and the marginal cost is also \$50. Thus, the output that maximizes profit is Q=6. The corresponding price can be found by looking at the demand schedule. At a quantity of 6, the price is \$50 per case. Therefore, the price charged is P=$50 and the output that maximizes profit is Q=6 cases.

Question 18

Which of the following statements is true about marginal revenue?

Accepted Answer

Marginal revenue is the additional revenue earned from selling one more unit of a good. If marginal revenue is negative, this means that the additional revenue earned from selling one more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price. This occurs when there is a downward-sloping demand curve, indicating that to sell more units, the firm must lower its price, which reduces the revenue earned on all units sold.

Question 19

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 firms producing similar but not identical products. Therefore, if one firm raises its price, consumers can easily switch to a competitor's product. As a result, a firm cannot raise its price without losing any customers, even if its product is highly desirable relative to its competitors.

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 11: Monopolistic Competition