Question 1

There are many cattle ranchers in the world,and there are also many McDonald's restaurants in the world.Why,then,does a McDonald's restaurant face a downward sloping demand curve while a cattle rancher faces a horizontal demand curve?

Accepted Answer

The answer of There are many cattle ranchers in the...

Question 2

Figure 13-2 
-Refer to Figure 13-2.Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 13-2.Dell will maximize profits if it produces ________ notebook computers per month.
A)100,000
B)200,000
C)300,000
D)Not enough information is given to determine the profit-maximizing quantity.

Accepted Answer

Without the figure or additional information such as price or marginal cost, it is impossible to determine the profit-maximizing quantity.

Question 3

Firms in monopolistic competition compete by selling similar,but not identical products.

Accepted Answer

In monopolistic competition, firms sell differentiated products that are similar to each other but not identical. This means that they compete with each other based on product features, quality, branding, and marketing, among other factors. However, because their products are not identical, firms have some market power, which allows them to set their own prices to some extent.

Question 4

Every firm that has the ability to affect the price of the good or service it sells will
A)have a perfectly elastic demand curve.
B)have a marginal revenue curve that lies below its demand curve.
C)earn a short-run profit but break even in the long run.
D)shut down in the short run.

Accepted Answer

If a firm has market power to affect the price of its good or service, it faces a downward sloping demand curve. However, in order to sell more units of the good, the firm must lower the price, which means that each additional unit sold brings in less revenue than the previous one. Therefore, the marginal revenue curve lies below the demand curve. This implies that the profit-maximizing output level is where marginal revenue equals marginal cost, which will be less than the output level that would maximize profit for a perfectly competitive firm. The firm may earn a short-run profit, but in the long run, new firms may enter the market, driving down the price and reducing profits. The firm will not necessarily have a perfectly elastic demand curve or shut down in the short run.

Question 5

Both monopolistically competitive firms and perfectly competitive firms maximize profits
A)by producing where price equals average total cost.
B)by producing where marginal revenue equals average revenue.
C)by producing where marginal revenue is equal to marginal cost.
D)by producing where price equals average variable cost.

Accepted Answer

Both monopolistically competitive and perfectly competitive firms aim to maximize profit by producing where marginal revenue is equal to marginal cost. This is because at that point, the firm is earning the maximum possible profit without incurring any additional costs. Producing where price equals average total cost or average variable cost will not necessarily result in maximizing profits because these measures do not take into account the incremental costs and revenues of producing additional units. Similarly, producing where marginal revenue equals average revenue may result in a profit, but not necessarily the maximum possible profit.

Question 6

The demand curve of a monopolistically competitive firm
A)is horizontal because the firm must cut its price to sell more.
B)is perfectly elastic.
C)is downward-sloping because it sells an identical product.
D)is downward-sloping because it must cut its price to sell more.

Accepted Answer

The demand curve of a monopolistically competitive firm is downward-sloping because it must cut its price to sell more. This is because the firm's product is not identical to its competitors, so consumers have some degree of brand loyalty or preference for the differentiating features of the firm's product. As a result, the firm cannot simply increase its price to increase profits, as it would lose customers to its competitors. Instead, the firm must lower its price to attract more customers, which results in a downward-sloping demand curve.

Question 7

A monopolistically competitive firm maximizes profit in the short run by producing where
A)price is less than marginal cost.
B)price is less than marginal revenue.
C)price is less than average revenue.
D)price is greater than marginal cost.

Accepted Answer

In the short run, a monopolistically competitive firm maximizes profit by producing where marginal revenue (MR) equals marginal cost (MC). However, because the firm faces a downward-sloping demand curve, the price it charges will be greater than MC. Therefore, the firm will produce where price is greater than MC, which is option D.

Question 8

Suppose that if a local McDonald's restaurant reduces the price of a Big Mac from $4.00 to $3.25,the number of Big Macs it sells per day will increase from 4 to 5.Explain the output effect and the price effect resulting from this change.Using a graph,illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac.What is the total change in revenue received which results from this price decrease?

Accepted Answer

The answer of Suppose that if a local McDonald's restaurant...

Question 9

Table 13-1
  Table 13-1 lists estimated revenues and costs (per week)for plastic vials (100 vials per box)for the Victoria Biological Supplies Company.Victoria sells plastic vials to university and private research laboratories.
-Refer to Table 13-1.Based on the data in the table,which of the following statements is true?
A)The table summarizes Victoria's short-run,rather than long-run,market for plastic vials.
B)Victoria could be either a monopolistically competitive or a perfectly competitive firm.
C)Victoria should shut down temporarily.
D)Victoria should advertise more in order to increase the demand for plastic vials.

Accepted Answer

The table only provides information on estimated revenues and costs per week, which is indicative of short-run market analysis. It is not possible to determine from the table whether Victoria is operating in a monopolistically competitive or perfectly competitive market. There is also no indication that Victoria should shut down temporarily or advertise more to increase demand.

Question 10

A monopolistically competitive firm chooses
A)both the quantity of output to produce and the price at which it will sell its output.
B)the price of the product it sells but market forces determine the quantity it will be able to sell.
C)the quantity of output to produce but the price of the product it sells is determined collectively by all firms in the industry.
D)the price of the product it sells but the quantity of output to produce is agreed upon by all firms in the industry.

Accepted Answer

In a monopolistically competitive market, firms have some control over the price they charge because their product is slightly different from their competitors. However, they cannot set the price arbitrarily high because there are close substitutes available. Therefore, the firm chooses the price of the product it sells but market forces determine the quantity it will be able to sell. The firm cannot set both the price and the quantity of output because it must take into account the market demand and the actions of its competitors.

Question 11

One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?

Accepted Answer

The answer of One of the assumptions of monopolistic competition...

Question 12

Table 13-1
  Table 13-1 lists estimated revenues and costs (per week)for plastic vials (100 vials per box)for the Victoria Biological Supplies Company.Victoria sells plastic vials to university and private research laboratories.
-Refer to Table 13-1.Victoria's profit-maximizing quantity sold (Q)and price (P)are:
A)Q = 3; P = $7.
B)Q = 4; P = $6.
C)Q = 5; P = $5.
D)Q = 6; P = $4.

Accepted Answer

The profit-maximizing quantity is where marginal cost equals marginal revenue. At Q = 4, P = $6, this condition is met, maximizing Victoria's profit.

Question 13

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Accepted Answer

Monopolistically competitive markets have low barriers to entry, meaning that new firms can easily enter the market and compete with existing firms. This is one of the defining characteristics of a monopolistically competitive market.

Question 14

Which of the following statements is true?
A)The marginal revenue of a monopolistically competitive firm will be positive at high prices and negative at low prices.
B)Because the demand curve for a monopolistically competitive firm is downward-sloping its marginal revenue will be negative.
C)The marginal revenue of a monopolistically competitive firm will be always be positive.
D)The marginal revenue of a monopolistically competitive firm will be positive at low prices and negative at high prices.

Accepted Answer

The answer of Which of the following statements is true?
A)The...

Question 15

Table 13-1
  Table 13-1 lists estimated revenues and costs (per week)for plastic vials (100 vials per box)for the Victoria Biological Supplies Company.Victoria sells plastic vials to university and private research laboratories.
-Refer to Table 13-1.Victoria's profit-maximizing output is where
A)total profit equals $3.
B)marginal revenue and marginal cost both equal $4.
C)marginal revenue and marginal cost both equal $3.
D)marginal cost is at its minimum value.

Accepted Answer

To maximize profit, a firm should produce where marginal revenue (MR) equals marginal cost (MC). In this case, the profit-maximizing output is where MR and MC both equal $3, which is the answer choice C. At this output level (60 boxes per week), total revenue is $540, total cost is $360, and total profit is $180, which is the highest value among all the output levels. Therefore, the correct answer is C.

Question 16

For a downward-sloping demand curve,marginal revenue decreases as quantity sold increases.

Accepted Answer

This is because in a downward-sloping demand curve, as quantity sold increases, the price per unit decreases, resulting in lower marginal revenue.

Question 17

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.
A)$270.
B)$20
C)$4
D)$2.50

Accepted Answer

The answer of Suppose a monopolistically competitive firm sells 25...

Question 18

After selling 1,000 three-ring binders Tony DiFulvio realizes that the marginal revenue from selling the last binder was less than the marginal cost.From this we can conclude that
A)Tony's business earns a short-run economic profit.
B)Tony should shut down his business temporarily.
C)Tony's profit fell after selling his 1,000th three-ring binder.
D)Tony's profit would be greater if he sold an additional three-ring binder.

Accepted Answer

The marginal revenue being less than the marginal cost indicates that Tony's profit fell after selling the 1,000th binder. This means that selling more binders would result in even lower profits, so it would not be profitable to sell an additional binder. However, this does not necessarily mean that Tony should shut down his business temporarily, as this decision would depend on the overall profitability of the business and the availability of alternative revenue sources. It also does not necessarily mean that Tony's business earns a short-run economic profit, as this information alone does not provide enough insight into the business's total revenue and costs.

Question 19

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market,but by separate curves for a firm in a monopolistically competitive market?

Accepted Answer

The answer of Why are demand and marginal revenue represented...

Question 20

Monopolistically competitive firms face a perfectly elastic demand curve.

Accepted Answer

Monopolistically competitive firms face a downward-sloping demand curve, but it is not perfectly elastic as in a perfectly competitive market. This is because each firm produces a differentiated product that is not a perfect substitute for other firms' products.

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

There are many cattle ranchers in the world,and there are also many McDonald's restaurants in the world.Why,then,does a McDonald's restaurant face a downward sloping demand curve while a cattle rancher faces a horizontal demand curve?

Figure 13-2 -Refer to Figure 13-2.Suppose Dell finds the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced is as shown by Figure 13-2.Dell will maximize profits if it produces ________ notebook computers per month.

Firms in monopolistic competition compete by selling similar,but not identical products.

Every firm that has the ability to affect the price of the good or service it sells will

Both monopolistically competitive firms and perfectly competitive firms maximize profits

The demand curve of a monopolistically competitive firm

A monopolistically competitive firm maximizes profit in the short run by producing where

A monopolistically competitive firm chooses

One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?

New firms are able to enter monopolistically competitive markets because there are low barriers to entry.

Which of the following statements is true?

Table 13-1 Table 13-1 lists estimated revenues and costs (per week) for plastic vials (100 vials per box) for the Victoria Biological Supplies Company.Victoria sells plastic vials to university and private research laboratories. -Refer to Table 13-1.Victoria's profit-maximizing output is where

For a downward-sloping demand curve,marginal revenue decreases as quantity sold increases.

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.

After selling 1,000 three-ring binders Tony DiFulvio realizes that the marginal revenue from selling the last binder was less than the marginal cost.From this we can conclude that

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market,but by separate curves for a firm in a monopolistically competitive market?

Monopolistically competitive firms face a perfectly elastic demand curve.