1. Price exceeds MC in: a. graph (a) only. b. graph (b) only. c. graphs (a) and (b) only. d. graphs (a), (b), and (c). 2. Price exceeds ATC in: a. graph (a) only. b. graph (b) only. c. graphs (a) and (b) only. d. graphs (a), (b), and (c). 3. The firm represented by Figure 13.1c is: a. making a normal profit. b. incurring a loss. c. producing at the same level of output as a purely competitive firm. d. producing a standardized product. 4. Which of the following pairs are both “competition-like elements” in monopolistic competition? a. Price exceeds MR; standardized product. b. Entry is relatively easy; only a normal profit in the long run. c. Price equals MC at the profit-maximizing output; economic profits are likely in the long run. d. A firm’s demand curve is downsloping; differentiated products. FIGURE 13.1 A monopolistically competituve firm: short run andlong run. The monopolistic competitor maximizes profit or minimizesloss by producing the output at which MR = MC. The economic profitshown in (a) will induce new firms to enter, eventually eliminatingeconomic profit. The loss shown in (b) will cause an exit of firms untilnormal profit is restored. After such entry and exit, the price willsettle in (c) to where it just equals average total cost at the MR = MCoutput. At this price P, and output Q, the monopolistic competitorearns only a normal profit, and the industry is in long-run equilibrium.MCATCEconomicprofitMR = MCMRQ,Quantity(a)Short-run profitsMCATCATCMCLossD2MR = MCMRMR = MCMRQ3QuantityQuantity(C)Long-run equilibrlum(b)Short-run lossesPrice and costsPrice and costsPrice and costs

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Answered: FIGURE 13.1 A monopolistically…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Price exceeds MC in: a. graph (a) only. b. graph (b) only. c. graphs (a) and (b) only. d. graphs (a), (b), and (c). 2. Price exceeds ATC in: a. graph (a) only. b. graph (b) only. c. graphs (a) and (b) only. d. graphs (a), (b), and (c). 3. The firm represented by Figure 13.1c is: a. making a normal profit. b. incurring a loss.
c. producing at the same level of output as a purely competitive firm. d. producing a standardized product. 4. Which of the following pairs are both “competition-like elements” in monopolistic competition? a. Price exceeds MR; standardized product. b. Entry is relatively easy; only a normal profit in the long run. c. Price equals MC at the profit-maximizing output; economic profits are likely in the long run. d. A firm’s demand curve is downsloping; differentiated products.

FIGURE 13.1 A monopolistically competituve firm: short run and
long run. The monopolistic competitor maximizes profit or minimizes
loss by producing the output at which MR = MC. The economic profit
shown in (a) will induce new firms to enter, eventually eliminating
economic profit. The loss shown in (b) will cause an exit of firms until
normal profit is restored. After such entry and exit, the price will
settle in (c) to where it just equals average total cost at the MR = MC
output. At this price P, and output Q, the monopolistic competitor
earns only a normal profit, and the industry is in long-run equilibrium.
MC
ATC
Economic
profit
MR = MC
MR
Q,
Quantity
(a)
Short-run profits
MC
ATC
ATC
MC
Loss
D2
MR = MC
MR
MR = MC
MR
Q3
Quantity
Quantity
(C)
Long-run equilibrlum
(b)
Short-run losses
Price and costs
Price and costs
Price and costs

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