C3.Monopolistic Competitioni. Discuss the main characteristics of the monopolistically competitive market structure. (*-ii. Explain the short-run and long-run profit-maximizing behaviour of a monopolistic competitor.iii. Graphically illustrate (on one graph) the long-run equilibrium of a perfectly competitive firm and a monopolistically competitive firm when theyshare the same cost structure. Define and explain the types of inefficiencies associated with monopolistic competition. ( Perfect CompetitionYou are a consultant on profit maximization. What do you recommend in each of the cases belowfor a perfectly competitive firm? In the "Answer" box, the following options can be used more thanonce or not at all:1.The firm is in the correct position.2 The firm should increase price.3. The firm should decrease price.4. The firm should increase output5.The firm should decrease output.6. The firm should shutdown.Note: You do not need to fill in all the blanks to find the answer for each case but you must show yourcalculations (i.e, blanks filled per case) used to determine your answer.CaseE$1.00$4.001,00010,0002,000TR$10,000$5.000$8,000TC$9,000$8,000TFC$1,500$1,000TVC$7,000ATC$1.80$3.50At minimum level$4.50AVC$5.50$3.00MC$2.00$5.00$4.50$4.00Answer:

The monopolistic market is characterized by the many firms and these firms produce the…

3. Monopolistic Competition i. Discuss the main characteristics of the monopolistically competitive market structure. (*- ii. Explain the short-run and long-run profit-maximizing behaviour of a monopolistic čompetitor. iii. Graphically illustrate (on one graph) the long-run equilibrium of a perfectly competitive firm and a monopolistically competitive firm when they share the same cost structure. Define and explain the types of inefficiencies associated with monopolistic competition. (

3. Monopolistic Competition i. Discuss the main characteristics of the monopolistically competitive market structure. (*- ii. Explain the short-run and long-run profit-maximizing behaviour of a monopolistic čompetitor. iii. Graphically illustrate (on one graph) the long-run equilibrium of a perfectly competitive firm and a monopolistically competitive firm when they share the same cost structure. Define and explain the types of inefficiencies associated with monopolistic competition. (

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Q7. It can be noted that the demand curve that monopolistically competitive firm is more elastic as compared to the one faced by a monopoly seller. Explain why this is true. (Hint: Think carefully about the characteristics of each market) If a monopolistically competitive firm makes super-normal profits in the short-run, what will happen to the demand curve as they move towards the long-run?
4. Explain why firms in perfect competitive markets have no incentive to advertise for their products and firms in monopolistic competitive markets have an incentive to advertise for their products.
Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each firm. Further, the quantity the firm produces in long-run equilibrium is the efficient scale. True or False: This indicates that there is excess capacity in the market for jackets. O True False Monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. The presence of the externality implies that there is too much entry of new firms in the market.
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5. Monopoly outcome versus competition outcome Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply (S = MC) curves in the market for hot dogs.
3.List four goods or services that you have purchased that were produced by an oligopolist. Why are these industries oligopolistic, rather than monopolistically competitive?
4. Comparing monopolistic competition and perfect competition Suppose that a firm produces tennis racquets in a monopolistically competitive market. The following graph shows its demand curve (D), marginal revenue curve (MR), marginal cost curve (MC), and long-run average cost curve (LRAC). Assume that all firms in the industry face the same cost structure. Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitive market. Note: Dashed drop lines will automatically extend to both axes. PRICE, COSTS, AND REVENUE (Dollars per racquet) 100 90 80 70 60 50 40 30 20 10 MC 0 0 LRAC MR D 10 20 30 40 50 60 70 80 QUANTITY (Thousands of racquets per month) 90 100 Monopolistic Competition Outcome Perfect Competition Outcome ?
7. 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: D1(P1) = 50 – P1 D2(P2) = 50 – 2p2 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?
7. Comparing monopoly and perfect competition Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium, with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply curves (S= MC) in the market for hot dogs. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from perfect competition. PRICE AND COSTS (Dollars per hot dog) 0.5 བྷྲ ༷ ྴ་ཤཱ་བྷ་ཛྙྰ་བླླ་ཤཱ་བ། 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.0 0 0 30 60 90 Perfect Competition S=MC D 120 150 180 210 240 270 300 QUANTITY (Hot dogs) PC Outcome Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs within the city limits. This firm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume…
3. Assume that a profit-maximizing firm in a monopolistically competitive industry is in long-run equilibrium. (a) Draw a correctly labeled graph that shows the profit-maximizing firm's price and output. (b) Assume that the city in which this industry operates eliminates the business license fee (a fixed cost) for all firms in this industry. How does the elimination of the license fee affect each of the following for the individual firm in the short run? Explain your answers. (i) Output (ii) Economic profits
4. A conceptual difference between a firm operating in a perfectly competitive market and a firm operating in a monopolistically competitive market is that: a) In the long run, the firm operating in a perfectly competitive market makes smaller profits than the firm operating in a monopolistically competitive one. b) If economic profits are being made, the firm in the perfectly competitive market will face entry of new firms whereas the firm in the monopolistically competitive one will not. c) None of the other answers. d) The firm in the perfectly competitive market faces a horizontal demand curve, whereas the firm in the monopolistically competitive market faces a downward sloping demand curve. e) In the long run equilibrium, the firm in the perfectly competitive market is operating where LAC = P but the firm in the monopolistically competitive market is operating where P > LAC.