Use of non- price competition on price competition.

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Chapter 13, Problem 4DQ

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Use of non-price competition on price competition.

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Assuming that the monopolistic competitor faces the demand and costs depicted below and finds the profit maximizing level of output, what will be the firm's profit? 36 32 28 24 20 16 12 8 4 O O 1 O MC1 ATC₁ FAVC₁ Select one: O a. $8 b. $-32 c. $-64 d. $12 x Incorrect. The profit maximizing output is 4 units where Marginal cost equals marginal revenue. At that output, use the demand curve to find the price and calculate total revenue. At that output, use the average cost curve to find the average cost and calculate total cost. Then calculate profit = total revenue - total cost. MR1 D₁ 2 3 4 5 6 7 8 9

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Rawlding is a manufacturer in the oligopolistically competitive market for footballs. Two other manufacturers, Spaldon and Wilke, compete with Rawlding for football consumers. Rawlding faces the demand curve for footballs depicted on the graph. Initially, Rawlding charges $30 per football, producing and selling 7 million footballs per year. PRICE (Dollars per ball) 36 35 34 33 32 31 30 29 28 27 26 O 7 8 FOOTBALLS (Millions of balls) 9 10 G As an oligopolist, Rawlding is a price maker. If Rawlding raises the price of its football from $30 to $32 per ball, the quantity of Rawlding footballs demanded by million footballs per year. If Rawlding reduces the price of its football from $30 to $28 per ball, the quantity of by million footballs per year. (Hint: Click on the points on the graph to see their coordinates.) footballs demanded If Rawlding raises the price of its football above $30, the kinked demand curve model suggests that Spaldon and Wilke will respond by The portion of Rawlding's…