Consider an industry operating under monopolistic competition, in which each firm produces a unique differ- entiated product. Firms in this industry can sell their output in two markets, Home (H) and Foreign (F). The demand curves that firm i faces in each market are: Аран APAF (1) (2) qiH = QiF= where A is a measure of market size and o> 1 is the elasticity of demand. Each firm i has a productivity level 0; that takes values over the interval (0,0], and produces its output using the production function: qi = Oili, (3) where li denotes the labour used in production by firm i. In order for a firm based at Home to sell its output domestically it needs to incur a fixed cost fn and if it chooses to export it needs to incur a fixed cost fy both

Consider an industry operating under monopolistic competition, in which each firm produces a unique differ- entiated product. Firms in this industry can sell their output in two markets, Home (H) and Foreign (F). The demand curves that firm i faces in each market are: Аран APAF (1) (2) qiH = QiF= where A is a measure of market size and o> 1 is the elasticity of demand. Each firm i has a productivity level 0; that takes values over the interval (0,0], and produces its output using the production function: qi = Oili, (3) where li denotes the labour used in production by firm i. In order for a firm based at Home to sell its output domestically it needs to incur a fixed cost fn and if it chooses to export it needs to incur a fixed cost fy both

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 11PAE

See similar textbooks

Similar questions

Suppose you operate in a monopoly environment and you set your price inorder to achieve maximum prots. Is your demand elastic, unitary elastic, or inelastic? Does your answer change if you were in a monopolistically competitive market? What happens to the elasticity when you go from a monopolistic market to a monopolistically competitive one? Explain and give an example. Retailer companies sell many products for which manufacturers have a sug-gested retail price printed on the package. Is there an economic reason for this price? If you are the manager of a retailing outlet, what factors will determine whether you should charge the suggested retail price or some higher or lower price?
If the typical firm in a monopolistically competitive industry is in the situation Q as depicted in the figure, it should expect V in the number of Monopolistically Competitive Firm firms in its market and V in the demand for its brand. MC SRATC D MR Output Price ($)
If new firms enter a monopolistically competitive industry, an individual firm's demand curve will ---- (increase/decrease). A/
Suppose you are employed at a monopolistic company as a research (pricing) economist and you are deriving the behavior of two markets based on demand curves given by: Di(P1) 3 50 — Pі D:(p>) — 50 — 2р2 Assume that the marginal cost is constant at $8 a unit. (a) If it can price discriminate, what price should it charge in each market in order to maximize profits? (b) If it can't price discriminate, what price should it charge?
Why is demand curve facing a monopolistic competition firm likely to be more elastic?
The graph below shows the demand curve for a perfectly competitive firm. Suppose that firms in this industry discover a way to differentiate their products. Using the line drawing tool, show how the firm's demand curve would be likely to change. Label the new demand curve 'd,'. Carefully follow the instructions above, and only draw the required objects. Since the demand curve is downward sloping, the monopolistically competitive firm will set a price OA. that is less than marginal cost. B. that is unrelated to marginal cost. OC. that is equal to marginal cost. D. that is greater than marginal cost. Price 10- Q Q Output 10
Bob competes in a monopolistically competitive market. Suppose some new firms enter the market, causing his perceived demand curve to shift. The following tables show Original Demand Curve his demand curves, before and after the change, and his cost information. Price Quantity TC Assume that Bob can only choose from the quantities of output given in the table. By how much will his profit change after these new firms enter the market? $33 $20,000 $32 1,000 $30,000 $31 2,000 $45,000 $30 3,000 $70,000 $29 4,000 $100,000 New Demand Curve Price Quantity TC $30 $20,000 $29 1,000 $30,000 $28 2,000 $45,000 $27 3,000 $70,000 $26 4,000 $100,000 O his profits will not change O decrease by $9,000 O increase by $11,000 O decrease by $11,000
2. The market for dark chocolate us characterized by Cournot duopolists - Honeydukes and Wonka industries. The market demand for dark chocolate is:P = 8 - 0.005Qdwhere P is the price per bar in dollars and Qd is dark chocolate's daily quantity demanded in bars (use qh to represent the quantity of dark chocolate sold by Honeydukes and qw to represent the quantity of dark chocolate sold by Wonka Industries). Honeydukes has a constant marginal cost of $2.50 per bar, while Wonka Industries has a constant marginal cost of $3.00 per bar. The firms move simultaneously in choosing their profit-maximizing quantity of output.a. Given the firms move simultaneously, what is the equation for Honeydukes' reaction function with qh expressed as a function of qw?b. Given the firms move simultaneously, what is the equation for Wonka's reaction function with qw expressed as a function of qh?c. What quantity of dark chocolate will each firm produce in equilibrium and what price will be established for a…
Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. 500 450 Monopolistically Competitive Outcome 400 350 ATC Profit or Loss 300 250 200 150 100 50 0 PRICE (Dollars per bike) MC MR Demand 400 0 50 100 450 500 150 200 250 300 350 QUANTITY (Bikes) Given the profit-maximizing choice of output and price, the shop is making shops in the industry relative to the long-run equilibrium. Now consider the long run in which bike manufacturers are free to enter and exit the market. profit, which means there are