How does the model of monopolistic competition studied in lectures differ from perfect competition? O In monopolistic competition consumers do not have perfect information. O In monopolistic competition firms have market power. O In monopolistic competition firms make profit, even in the long run with no fixed costs. O In monopolistic competition there are economies of scale. O More than one of the above. O No Answer
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- Monopolistic competition creates inefficiency because of the Price markups and excess capacity. The graph depicts the situation $100 for a hypothetical monopolistically competitive firm. The 90 curves included in the graph are demand (D), marginal 80 revenue (MR), average total cost (ATC), and marginal cost ATC (MC). Use the graph to find the requested values. 70 60 What is the size of the markup on the price? 50 40 markup: $ 30 What is the size of the excess capacity? 20 MC MR 10 units excess capacity: 20 30 40 50 60 70 80 90 10 100 QuantityWhich of the following is not true? Monopolistic competition and perfect competitive markets do not have any economic profits. In monopolistic competition, perfect competition and monopoly's, the demand curve is downward sloping. There are free entry/exit in two of the three types of markets we have studied The products that are sold by monopolies and monopolistic competitors are differentSuppose you manage a local grocery store, and you learn that a very popular national grocery chain is about to open a store just a few miles away. Use the model of monopolistic competition to analyze the impact of this new store on the quantity of output your store should produce (Q) and the price your store should charge (P). What will happen to your profits? Explain your reasoning in detail. How and why do profits change? What could you do to defend your market share against the new store?
- The diagram above represents a monopolistically competitive firm. Answer the questions below. Is this firm operating in the short-run or long-run? How do you know? Calculate this firm’s accounting profit. From the diagram, what is the productively efficient output for this firm? From the diagram, economies of scale are maximized at which output level? Explain. From the diagram, what is the allocatively efficient output for this firm? Explain.When oil prices increased 10 fold during the 1973 – 80 energy crisis, many oil companies made huge profits. During this energy crisis, Congress considered imposing an “excess profits” tax on oil companies. If you were in Congress, would you vote for such a tax? Do unexpected monopolistic profits serve any useful function in a market economy?Under conditions of monopolistic competition, firms may pursue a strategy of product differentiation.Explain what this strategy entails.
- Although the long run equilibrium of a monopolistically competitive markets involves zero economic profit likeperfect competition, the outcome is deemed to be inefficient. Why is that the case? Are there desirablecharacteristics of monopolistic competition that potentially balance some of the inefficiencies?What are the “monopolistic” and the “competitive” elements of monopolistic competition?Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click twice to empty the box.Similar to a monopoly, a monopolistic competitor: can restrict output to increase price (at least in the short run).checked can make profits or losses in the short run.unanswered faces a downward-sloping demand curve.unanswered faces high barriers to entry.unanswered makes economic profits in the long run.unanswered produces where P > MR = MC.unanswered has one seller.unanswered Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click twice to empty the box.Similar to a perfect competitor, a monopolistic competitor: faces a perfectly elastic demand…In long run equilibrium, economic profits tend to zero in a perfectly competitive market and also in a monopolistically competitive market. This is true because both market structures share a crucial characteristic. What is the characteristic that causes economic profits to get pushed towards zero in both perfect competition and monopolistic competition?
- Suppose the market for kitchen knives is monopolistically competitive and that businesses in this market are currently earning negative economic profits. In the long run, the demand for an individual kitchen knife business will ______ as more kitchen knife businesses leave the market, which will cause economic profits to ______ .The diagram shows a firm that produces tennis rackets in a monopolistically competitive market. Assume that it is operating in the short run. Is the firm earning a positive profit or suffering a loss in the short run? Explain what will happen to a typical firm in this industry in the long run, including characteristics of the firm in long run equilibrium. A diagram may be used as part of the explanation, but is not required.The following table shows the daily cost data and demand schedule for a typical firm producing board games in a monopolistically competitive market in the short run.