Question 1

Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss?

Accepted Answer

The answer of Which of the following would not occur...

Question 2

In theory, in the long run, monopolistically competitive firms earn zero profits.However, in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

Accepted Answer

By identifying new markets and developing products precisely for those markets, a firm can differentiate its products and create a unique value proposition, which can give it a competitive edge over its rivals. This can allow the firm to charge a higher price for its products, and thereby earn profits in the long run. Gradually increasing the mark-up or lowering prices may not be sustainable strategies, as they can lead to a loss of market share or erode profit margins. Finding a narrow market niche may also not be a viable option, as it can limit the growth potential of the firm and make it susceptible to new entrants.

Question 3

If firms in a monopolistically competitive industry are making profits in the short run, then

Accepted Answer

In a monopolistically competitive market, short-run profits attract new firms to enter the market, increasing competition and driving profits down in the long run.

Question 4

Figure 13-13
 
-Refer to Figure 13-13.What is the output price?

Accepted Answer

The output price is P₄ because it is the price at which the quantity supplied equals the quantity demanded.

Question 5

Figure 13-13
 
-Refer to Figure 13-13.What is the profit-maximizing output level?

Accepted Answer

The profit-maximizing output level is where marginal revenue equals marginal cost, which is at point Q4 in the graph. At this output level, the firm can earn the highest profit as the difference between total revenue and total cost is the greatest.

Question 6

Long-run equilibrium under monopolistic competition and perfect competition is similar in that

Accepted Answer

In long-run equilibrium, both monopolistic competition and perfect competition result in firms breaking even, meaning they earn zero economic profit.

Question 7

Figure 13-13
 
-Refer to Figure 13-13.If the diagram represents a typical firm in the market, what is likely to happen to its average cost of production in the long run?

Accepted Answer

The answer of Figure 13-13
 
-Refer to Figure 13-13.If the...

Question 8

Figure 13-14
  
Figure 13-14 illustrates a monopolistically competitive firm.
-Refer to Figure 13-14.Which of the following statements describes the firm depicted in the diagram?

Accepted Answer

The firm is producing at a quantity where marginal revenue equals marginal cost (Q₀). At this point, the firm is making zero economic profit but is covering all its costs. In the long run, if the firm was making a loss, firms would exit the industry and decrease supply, leading to an increase in price and eventually restoring equilibrium where the firms break even. Therefore, the firm is in long-run equilibrium and is breaking even.

Question 9

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

In the long-run equilibrium of a monopolistically competitive firm, the firm produces where MR=MC to maximize profits. However, due to the presence of product differentiation, the firm charges a price higher than the minimum average total cost (ATC) to cover its fixed costs. As the firm is earning normal profits, P=ATC. Therefore, the correct answer is A, where both P=ATC and MR=MC in the long-run equilibrium.

Question 10

Figure 13-13
 
-Refer to Figure 13-13.If the diagram represents a typical firm in the market, what is likely to happen in the long run?

Accepted Answer

In the long run, if firms in a market are making profits, new firms are likely to enter the market, increasing supply and causing the demand curve for existing firms to decrease.

Question 11

Figure 13-14
  
Figure 13-14 illustrates a monopolistically competitive firm.
-Refer to Figure 13-14.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?

Accepted Answer

At Q₁, the firm's average cost is higher than its marginal revenue. Therefore, the firm would suffer an economic loss at Q₁, while it would break even at Q₀. Hence, it would not be profitable for the firm to expand output beyond Q₀ to Q₁.

Question 12

In the long run, if the demand curve of a profit-maximizing monopolistically competitive firm is tangent to its average total cost curve, then

Accepted Answer

If the demand curve is tangent to the average total cost curve, the firm is producing at the minimum efficient scale and is earning a normal profit. This means that the firm is covering all of its costs, including its fixed costs, but is not earning any economic profit. Therefore, the firm would break even.

Question 13

A monopolistically competitive firm that earns an accounting profit in the short run

Accepted Answer

A monopolistically competitive firm that earns an accounting profit in the short run could earn an economic profit (if the price charged is above the average total cost), break even (if the price charged is equal to the average total cost), or suffer an economic loss (if the price charged is below the average total cost but above the average variable cost). The economic profit or loss depends on the specific market conditions and the firm's cost structure.

Question 14

When new firms are encouraged to enter a monopolistically competitive market,

Accepted Answer

If new firms are encouraged to enter a monopolistically competitive market, it implies that the existing firms have been earning economic profits. This encourages new firms to enter the market and compete with them. If the existing firms were making losses, it would not be attractive for new firms to enter.

Question 15

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

Accepted Answer

The area that represents the firm's total cost is typically the area under the average total cost curve up to the quantity produced, which in this case is represented by the area P₂dQ₄0.

Question 16

The entry and exit of firms in a monopolistically competitive market guarantee that

Accepted Answer

In a monopolistically competitive market, the entry and exit of firms ensure that in the long run, firms earn zero economic profit, meaning price equals average total cost.

Question 17

Which of the following describes the relative positions of the demand curve and the average total cost (ATC)curve of a monopolistically competitive firm that earns a profit in the short run?

Accepted Answer

In the short run, a monopolistically competitive firm can earn a profit if its demand curve is above its ATC curve. In the long run, new firms enter the market, driving profits to zero, making the demand curve tangent to the ATC curve.

Question 18

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

Accepted Answer

The area between the demand curve (Ed) and the marginal cost curve (P₂) represents the firm's profit. In this case, it is the area P₄edP₂.

Question 19

Tony's Italian Ice is a monopolistically competitive firm.If Tony's earns a profit in the short run, which of the following is most likely to occur?

Accepted Answer

In monopolistic competition, short-run profits attract new firms, increasing competition and causing the demand curve for existing firms like Tony's to shift to the left as customers have more options.

Question 20

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium?

Accepted Answer

In the long run, new firms enter the market due to economic profits, increasing competition. This causes the demand for each existing firm's product to decrease and become more elastic as consumers have more substitutes available.

Quiz 13: Monopolistic Competition: the Competitive Model in a

Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss?

In theory, in the long run, monopolistically competitive firms earn zero profits.However, in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

If firms in a monopolistically competitive industry are making profits in the short run, then

Figure 13-13 -Refer to Figure 13-13.What is the output price?

Figure 13-13 -Refer to Figure 13-13.What is the profit-maximizing output level?

Long-run equilibrium under monopolistic competition and perfect competition is similar in that

Figure 13-13 -Refer to Figure 13-13.If the diagram represents a typical firm in the market, what is likely to happen to its average cost of production in the long run?

Figure 13-14 Figure 13-14 illustrates a monopolistically competitive firm. -Refer to Figure 13-14.Which of the following statements describes the firm depicted in the diagram?

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

Figure 13-13 -Refer to Figure 13-13.If the diagram represents a typical firm in the market, what is likely to happen in the long run?

Figure 13-14 Figure 13-14 illustrates a monopolistically competitive firm. -Refer to Figure 13-14.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?

In the long run, if the demand curve of a profit-maximizing monopolistically competitive firm is tangent to its average total cost curve, then

A monopolistically competitive firm that earns an accounting profit in the short run

When new firms are encouraged to enter a monopolistically competitive market,

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

The entry and exit of firms in a monopolistically competitive market guarantee that

Which of the following describes the relative positions of the demand curve and the average total cost (ATC) curve of a monopolistically competitive firm that earns a profit in the short run?

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

Tony's Italian Ice is a monopolistically competitive firm.If Tony's earns a profit in the short run, which of the following is most likely to occur?

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium?