2. How does advertising impact monopolistically competitive firms? A. It causes a firms perceived demand curve to become more inelastic. B. It either causes a firms perceived demand curve to become more elastic, or advertising causes demand for the firms product to increase. C. Advertising always causes monopolistically competitive firms to experience lover average costs.

2. How does advertising impact monopolistically competitive firms? A. It causes a firms perceived demand curve to become more inelastic. B. It either causes a firms perceived demand curve to become more elastic, or advertising causes demand for the firms product to increase. C. Advertising always causes monopolistically competitive firms to experience lover average costs.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter14: Monopolistic Competition And Product Differentiation

Section: Chapter Questions

Problem 6P

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Westchesser Gloves is a monopolistically competitive firm that sells leather gloves. a. In the graph below, highlight the area of profit or loss. Price per pair ($) Incorrect 10 9 8 7 3 2 1 0 Average total cost 0 10 20 30 40 50 Pairs of gloves (in thousands) Westchesser's profit/loss: $ Marginal cost 80 Incorrect Demand Marginal revenue 60 70 80 90 100 b. Calculate Westchesser's profit/loss at the profit maximizing price. Profit or loss
1. How might advertising make market less competitive? How might it make markets more competitive? Give the arguments for and against brand names. 2. You are hired as a consultant to a monopolistically competitive firm. The firm reports the following information about its price, marginal cost, and average total cost. Can the firm possibly be maximizing profit? If not, what should it do to increase profit? If the firm is maximizing profit, is the market in a long-run equilibrium? If not, what will happen to restore long-run equilibrium? a. P < MC, P > ATC b. P > MC, P < ATC c. P = MC, P > ATC d. P > MC, P = ATC
Price, Cost MR MC ATC D Quantity
Figure 16-6 The figure is drawn for a monopolistically competitive firm. PRICE 160 140 123.33 90 56.67 100 133.33 154.92 QUANTITY MR MC ATC Demand Refer to Figure 16-6. In response to the situation represented by the figure, we would expect a. new firms to enter the market. b. the demand for this firm's product to decrease, assuming this firm does not exit. c. this firm's profit to remain the same. d. some of the firms that are currently in the market to exit.
K Suppose the figure to the right represents the market for a particular brand of shampoo, such as L'Oreal, Lancome, or Maybelline. Assume the market is monopolistically competitive. What is the firm's profit-maximizing price and quantity? thousand per bottle. (Enter your The monopolistically competitive firm's profit-maximizing quantity is bottles of shampoo, and its profit-maximizing price is $ responses as integers.) Price and cost (per bottle) ♫ 3.00- MC 2.80- ATC 2.60- 2.40- 2.20- 2.00- 1.80- 1.60- 1.40- 1.20- 1.00- 0.80- 0.60- 0.40- 0.20- 0.00+ 0 MR 2 4 6 8 10 12 14 16 18 20 22 24 Quantity (shampoo bottles in thousands)
3. The accompanying graph (bottom of this page) summarizes the demand and costs for a firm that operates in a monopolistically competitive market. 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? $220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 MC ATC 50 40 30 20 10 MR. 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Quantity 4. A firm has $1 million in sales, a Lerner index of 0.65, and a marginal cost of $35, and competes against 1,000 other firms in its relevant market. a. What price does this firm charge its customers? b. By what factor does this firm mark up its price over marginal cost? c. Do you think this firm enjoys much market power? Explain.
4. What do monopolistic competitors rely on to attract buyers?
3. How does a monopolistic competitor choose its profit-maximizing quantity of output and price?
Week #8 Assignment: 2. Sub-subje Monopolistic Competitor What is the profit - maximizing output level? What is the firm's proft - maximizing price? Is this firm productively efficient? Will the firm eam a profit or loss at the profit - maximizing output level? How much is that profit or looss? Based on this information, do you think fims will enter or exit this industry? Why or whynot?
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