Tastibite's BRF TASTIBITE'S PRICE Now suppose that in addition to differing in the amount of nuts each snack contains, Tastibite reduces the amount of sugar it uses in its snacks, thus increasing their appeal to more health-conscious consumers and decreasing their appeal to those primarily concerned with the taste. In this case, the resulting equilibrium price for both firms will be the price predicted when the products are only slightly differentiated. True or False: If consumers started caring more about product differentiation, the equilibrium price would move closer to marginal cost. O True False

Think about firms such as the Coca Cola Company and PepsiCo who competeagainst each other in the monopolistically competitive market for soft drinks. Eachfirm produces a unique product, but each of these unique products is to some extenta substitute for the soft drinks produced by rival companies.Now imagine a situation where the firms within such a market are facing suchextreme competition that they are unable to make an operating profit. Characterisethis situation diagrammatically and explain what will happen to the market, payingparticular attention to the exit or entry of firms out of (or into) the market.

3. What is the difference in the profit-maximizing decision of a perfect competitor versus a monopolistic competitor (not monopoly)? What is the difference in their demand curves? Briefly explain. 4. Suppose Alice and Betsy are playing a game in which each can play either of two strategies, leave or stay. Betsy Alice Leave Stay Leave $300, $300 $C, $800 Stay $800, $C $600, $600 If you know that a Nash equilibrium exists where both Alice and Betsy choose 'leave', is 'C' greater than $300, less than $300, or equal to $300? Briefly explain. 5. How is the price elasticity of demand correlated with the degree of competition in an industry? Would we expect the price elasticity of demand to be greater in a monopoly setting or a monopolistic competition setting? Briefly explain

TI,e market for peanut butter in , utville is monopolistically competitive and in long-run cquilibriun,.One day, consumer advocate Skippy )if discovers thatall brands of peanut buuer in · utville arc identical.TI,ercalter, the market beromes perfectly compctiti vc and again reaches its long-run equilibriun. Usingan appropriate diagram, explain whether each of thefollowing varmblcs increases, decreases, or stays thesame for a typical firm in the market.a. priceb. quantityc. average total costd. margi.na.l coste. profit

9 of 15 Warwick Inc. produces in a monopolistically compettive market. Which of the following corectly explains howa fmin this market struchure would transition trom the short run to the long run? O The supemomal profits eamed by Warwick Inc in the short run will attract new firma into the market. This wil shit the market supply curve to the right, which will reduce the market price and the price faced by Warwick ine. The price wil keep falling until Average Revenue equals Average Cost and only normal profits are made. O The supermormal profits eamed by Warwick Inc. in the short run will attract new firms into he martet. This wil shit Warwick ine. demand curve to the left and t wit continue to shit left until Average Revenue equals Average Cost and only normal profits are made O The supemomal profits eamed by Wanwick Inc. in the short run will lead to the market demand aurve shifing to the right, which will raise the price fims can sell at and ts wil atract now frms into the market.…

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Review Question 12-01 O A monopolistically competitive firm gets a massive amount of free advertising when a government agency gives it an award and millions of people mention the award to each other on social media. Which of the following is most likely to happen? Mc Graw Multiple Choice O Demand becomes more elastic and pricing power increases. Demand becomes less elastic and pricing power decreases. Demand becomes less elastic and pricing power increases. Demand becomes more elastic and pricing power decreases. < Prev 10 of 10 MacRook Di Next

5. To advertise or not to advertise Suppose that Fizzo and Pop Hop are the only two firms that sell orange soda. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Рop Hop Advertise Doesn't Advertise Advertise 10, 10 18, 2 Fizzo Doesn't Advertise 2, 18 11, 11 For example, the upper right cell shows that if Fizzo advertises and Pop Hop doesn't advertise, Fizzo will make a profit of $18 million, and Pop Hop will make a profit of $2 million. Assume this is a simultaneous game and that Fizzo and Pop Hop are both profit-maximizing firms. If Fizzo decides to advertise, it will earn a profit of $ million if Pop Hop advertises and a profit of $ million if Pop Hop does not advertise. If Fizzo decides not to advertise, it will earn a profit of S million if Pop Hop advertises and a profit of $ million if Pop Hop does not advertise. If Pop Hop advertises, Fizzo makes a higher profit if it chooses If Pop Hop…

Quantity MO ATO 21. In an oligopolistic mark MARE profits and losses, but 20. Refer to the above graph of the representative firm in monopolistic competition. The long-run equilibrium price and output for this firm will be A. A and D B. B and D C. A and C D. B and C