Microeconomics (Book Only)
12th Edition
ISBN: 9781285738307
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 11, Problem 7QP
To determine
Explain product X made in a
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Your friend Stan owns a coffee shop in a monopolistically competitive industry. One day, Stan tells you (an economist) that he is earning an economic profit and is setting his price equal to his marginal cost. Is Stan producing the profit-maximizing amount of coffee? What should he do?
In which type of market, monopolistic or competitive market, is the equilibrium market price lower? Why?
Answer all four questions!
Is a monopolistically competitive firm productively efficient? How can you tell?
Offer one reason why a monopolistically competitive firm might be productively inefficient.
Is it allocatively efficient? How can you tell?
Offer one reason why a monopolistically competitive firm might be allocatively inefficient.
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- The diagram above shows a monopolistically competitive firm in the long run. Answer the questions below. Using the points displayed on the diagram, name the rectangular area that represents the profit or loss. What should the firm do regarding price and/or quantity to minimize its losses?arrow_forwardWhich form is a monopolistic competitor operating in the long run?arrow_forwardWill there be profits in the long run in a monopolistically competitive market?arrow_forward
- what market inefficiencies derive from monopolies and monopolistic competition?arrow_forwardWhen oil prices increased 10 fold during the 1973 – 80 energy crisis, many oil companies made huge profits. During this energy crisis, Congress considered imposing an “excess profits” tax on oil companies. If you were in Congress, would you vote for such a tax? Do unexpected monopolistic profits serve any useful function in a market economy?arrow_forwardSuppose you manage a local grocery store, and you learn that a very popular national grocery chain is about to open a store just a few miles away. Use the model of monopolistic competition to analyze the impact of this new store on the quantity of output your store should produce (Q) and the price your store should charge (P). What will happen to your profits? Explain your reasoning in detail. How and why do profits change? What could you do to defend your market share against the new store?arrow_forward
- What factors hinder firms in monopolistic competition from earning economic profits in the long run?arrow_forwardThe diagram above represents a monopolistically competitive firm. Answer the questions below. Is this firm operating in the short-run or long-run? How do you know? Calculate this firm’s accounting profit. From the diagram, what is the productively efficient output for this firm? From the diagram, economies of scale are maximized at which output level? Explain. From the diagram, what is the allocatively efficient output for this firm? Explain.arrow_forwardIs the outcome in a monopolistically competitive market desirable from the standpoint of society? Can the government improve on the market outcome?arrow_forward
- Monopolistic competition creates inefficiency because of the Price markups and excess capacity. The graph depicts the situation $100 for a hypothetical monopolistically competitive firm. The 90 curves included in the graph are demand (D), marginal 80 revenue (MR), average total cost (ATC), and marginal cost ATC (MC). Use the graph to find the requested values. 70 60 What is the size of the markup on the price? 50 40 markup: $ 30 What is the size of the excess capacity? 20 MC MR 10 units excess capacity: 20 30 40 50 60 70 80 90 10 100 Quantityarrow_forwardWhat is the relationship between product differentiation and monopolistic competition? Or is there a relationship. Why?arrow_forwardHow do the results of a competitive industry compare with that of a monopolistic industry?arrow_forward
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