MICROECONOMICS(LL)COMPANION
21st Edition
ISBN: 9781260713541
Author: McConnell
Publisher: MCG
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Question
Chapter 13, Problem 5DQ
Subpart (a):
To determine
The profits in a monopolistic competition .
Subpart (b):
To determine
The profits in a monopolistic competition.
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Question 2 [JP.14.3.19]
Consider a duopoly where the market demand is described by the equation: P = 150- Q. The marginal
cost for each firm is $60.
lo.] If the firms compete simultaneously with output, what is each firm's profit-maximizing output, the market
quantity, and the price each firm charges?
(b.) What is the economic profit eamed by each firm (from question [a]}
[c.) If Firm 1 is a leader in output, what is each firm's profit-maximizing output, the market quantity, and the
price each firm charges?
[d.] What is the economic profit earned by each firm (from question [c])?
Ma3.
You operate in a duopoly in which you and a rival must simultaneously decide what price to charge for the same homogeneous product. Assume each you and your rival can choose a “low price” or a “high price”. If you each charge a low price, you each earn zero profits. If you each charge a high price, you each earn profits of $3 million. If you charge different prices, the one charging the high price loses $5 million and the one charging the low price makes $5 million.
What is the Nash equilibrium for the non-repeated version of this game?
Now suppose the game is infinitely repeated. If the interest rate is 10%, can you do better than you could in the non-repeated version of this game? If your answer is “yes”, provide the players’ strategies and any other conditions that must hold.
Give some examples of fixed costs and variable costs. Why do average fixed costs decline across a range of increasing production? Do average variable cost decline, increase, or do both as production increases? Explain. Tell me about perfect competition. Why is it that perfect competition is more of a theoretical market structure than a practical one? In addition, please explain the most important characteristic in perfect competition, monopolistic competition, oligopoly, and monopolies and relate the characteristic to how these firms can make profits in the short run. In your analysis, make sure to relate an example for each of the market structures listed and how it relates to the particular characteristics.
Chapter 13 Solutions
MICROECONOMICS(LL)COMPANION
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- 3. The following graph summarizes the demand and costs for a firm that operates in a monopolistically competitive market. (LOI, LO3, LOS) $220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 MR 8 9 10 11 12 13 14 15 16 a. What is the firm's optimal output? b. What is the firm's optimal price? c. What are the firm's maximum profits? d. What adjustments should the manager be anticipating? ATC 22 23 24 25 Quantityarrow_forwardWhich of the following statements concerning profit-maximizing firms in long-run equilibrium is true? In a purely competitive market, firms produce a level of output where price is greater than average total cost. In a purely competitive market, firms produce a level of output where price is greater than marginal cost. O In a monopolistically competitive market, firms produce a level of output at which price exceeds the minimum average total cost. In a monopolistically competitive market, firms produce a level of output that exceeds the output where average total cost is minimized.arrow_forwardRawlding 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…arrow_forward
- What is a feature common to both Monopolistic-Competition and Oligopoly type of markets? O productive efficiency will occur in both the short run and long run, a desirable economic property of markets. many smaller sized firms can produce the good or service at lower cost per unit than larger sized firms, thus large firms fail in the long run. the demand curve for each firm is not going to be purely elastic, because products are at least slightly different than potential rival firms' product and/or there may be some consumer brand loyalty. Firms in both types of markets eventually will be broken up by government anti-trust laws and regulations. MacBook Pro く※ G Search or type URL 6 7 8. 3 4. W Earrow_forwardWhat did Harvard economist Edward Chamberlin say about the observation that a monopolistically competitive firm's average cost of production exceeds its minimum average total cost? Select one: O a. Chamberlin argued that this belief is incorrect. In his view, monopolistically competitive firms do not produce at a cost above their minimum average total costs. O b. Chamberlin argued that these higher costs represent the wastefulness of this market structure. O c. In Chamberlin's view, this is evidence that monopolistic competition uses society's resources inefficiently and in a fashion that merits government intervention. O d. According to Chamberlin, this cost difference represents the value consumers place on variety and having more choice.arrow_forwardThe most important factor that drives the long-run profit to zero in monopolistic competition is the elasticity of the market demand curve the elasticity of the firm's demand curve free entry and exit O the reaction of rival firms to a change in price What is one difference between the Cournot and Stackelberg models? O In Cournot, both firms make price decisions simultaneously, and in Stackelberg, one firm sets its price level first O In Stackelberg, both firms make price decisions simultaneously, and in Cournot, one firm sets its price level first O In Cournot, both firms make output decisions simultaneously, and in Stackelberg, one firm sets its output level first O In Stackelberg, both firms make output decisions simultaneously, and in Cournot, one firm sets its output level first O Profits are zero in Cournot and positive in Stackelbergarrow_forward
- QUESTION 1 Press F11 to exit full screen Which firm would earn profit in the long-run? O a monopolist firm. O a monopolistically competitive firm. O an oligopoly firm. O a perfectly competitive firm. QUESTION 2 Refer to the graph below for a monopolistically competitive firm. ↑Price MC 160 140 ATC 123.33 Demand 90 56.67 MR 100 133.33 154.92 Quantity If the above firm chose to produce at 100 units then the firm will be O earning a profit O incurring a loss O there is no profit and no loss O the firm can earn, profit, loss or break evenarrow_forwardSuppose that an monopolistically competitive restaurant is currently serving 230 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal. What is the size of this firm's profit or loss? Profit Will there be entry or exit? Entry > of $ 460 Will this restaurant's demand curve shift left or right? Left In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. What is the size of the firm's profit? $ 540 xarrow_forwardQuestion 24 A monopolistically competitive market is like both a competitive market and a monopoly in that all three market structures feature easy entry by new firms in the long run. firms in all three market structures maximize profit by producing an output level where marginal revenue equals marginal cost. C firms in all three market structures produce the welfare-maximizing level of output. O All of the above are correct. Quizarrow_forward
- Suppose that an monopolistically competitive restaurant is currently serving 270 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $13 per meal. What is the size of this firm's profit or loss? Profit of $ Will there be entry or exit? Entry k Will this restaurant's demand curve shift left or right? Left In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $9. ices What is the size of the firm's profit? $ MacBook Airarrow_forwardA monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to 20. Price $30 $26 $22 $18 $14 $10 $6 Quantity 1 2 3 4 5 6 7 If the firm produces its profit-maximizing level of output and there is a constant marginal cost of $7 per unit, which of the following is incorrect? O This firm earns $25 profit at the profit-maximizing level of output. This firm is not operating at its efficient scale. O This firm is in a long-run equilibrium. O This firm charges a price of $22 to maximize its profit.arrow_forwardConsider an oligopolistic market with 5 identical firms that choose their profit-maximizing quantities simultaneously. Suppose each firm has constant marginal costs of $123 per unit and the market elasticity of demand is - 1.08. What is the change in the prevailing market price if one additional firm joins the market? Assume that the potential entrant is identical to the incumbent firms. O A. -7.71 O B. - 5.51 O C. -9.92 O D. - 6.89arrow_forward
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