Micro Economics For Today
10th Edition
ISBN: 9781337613064
Author: Tucker, Irvin B.
Publisher: Cengage,
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Chapter 10, Problem 5SQP
To determine
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Students have asked these similar questions
Distinguish between the features of perfect competition and monopolistic competition. Give real world examples of each of these types of markets.
Susan owns a restaurant that sells hamburgers in a monopolistically competitive
market. The graph to the right depicts the demand and marginal revenue for her
hamburgers.
Suppose that Susan's restaurant is maximizing profits at 35 hamburgers (per
day).
Assume that the monopolistically competitive industry is at a long-run equilibrium.
Use the three-point curve drawing tool to add Susan's long run average cost (ATC)
curve to the graph. Properly label this curve.
Carefully follow the instructions above, and only draw the required objects.
ul
Price and cost (dollars per hamburger)
2.00-
2.25-
2.00-
1.75
1.50-
1.25
1.00-
0.75-
0.50
0.25
0
MR
10 20 30 40 50 60 70 80
Quantity of hamburgers (per day)
ATC
D
90 100
a
G
Why is there a price markup over marginal cost in
monopolistic competition?
a downward-sloping demand curve, price exceeds
marginal cost
The graph shows the demand curve and marginal revenue
curve of Whitewater, Inc., a producer of rubber rafts in
monopolistic competition.
Draw the marginal cost curve if the firm produces 150 rafts
a week. Label it.
Draw a point at the intersection of the MC and MR curves.
Draw a point to show the price that Whitewater charges for
a raft when it produces 150 rafts a week.
Draw an arrow to show the amount of Whitewater's
markup.
What is Whitewater's markup?
Whitewater's markup is $750 a raft.
750-
675-
600-
525-
450-
375-
300-
225-
150-
75-
0
Price and cost (dollars per raft)
50
100
150
Quantity (rafts per week)
D
MR
200
>>> Draw only the objects specified in the
question.
21
Chapter 10 Solutions
Micro Economics For Today
Ch. 10.1 - Prob. 1YTECh. 10.5 - Prob. 1GECh. 10.6 - Prob. 1YTECh. 10 - Prob. 1SQPCh. 10 - Prob. 2SQPCh. 10 - Prob. 3SQPCh. 10 - Prob. 4SQPCh. 10 - Prob. 5SQPCh. 10 - Prob. 6SQPCh. 10 - Prob. 7SQP
Ch. 10 - Prob. 8SQPCh. 10 - Prob. 9SQPCh. 10 - Prob. 10SQPCh. 10 - Prob. 11SQPCh. 10 - Prob. 12SQPCh. 10 - Prob. 13SQPCh. 10 - Prob. 1SQCh. 10 - Prob. 2SQCh. 10 - Prob. 3SQCh. 10 - Prob. 4SQCh. 10 - Prob. 5SQCh. 10 - Prob. 6SQCh. 10 - Prob. 7SQCh. 10 - Prob. 8SQCh. 10 - Prob. 9SQCh. 10 - An oligopoly is a market structure in which a. one...Ch. 10 - Prob. 11SQCh. 10 - A common characteristic of oligopolies is a....Ch. 10 - Prob. 13SQCh. 10 - Prob. 14SQCh. 10 - Prob. 15SQCh. 10 - Prob. 16SQCh. 10 - Prob. 17SQCh. 10 - Prob. 18SQCh. 10 - Prob. 19SQCh. 10 - The kinked oligopoly demand curve is a result of...
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- 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?arrow_forwardThe 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.arrow_forwardThe diagram above represents a monopolistically competitive firm. Answer the questions below. 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.arrow_forward
- 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. 100 LRAC 60 50 PRICE, COSTS, AND REVENUE (Dollars per racquet) 8 R 90 MC 10 0 0 10 D MR 50 60 70 80 90 100 20 30 40 QUANTITY (Thousands of racquets per month) Monopolistic Competition Outcome Perfect Competition Outcome Compare the average cost and the output in the long-run equilibrium for a monopolistically competitive…arrow_forwardCompare and contrast the way that monopolistic competitors set price with the way that perfectly competitive firms set price. Also, compare and contrast the short and long run equilibrium in perfect competition and monopolistic competition.arrow_forwardWhich of the following is a requirement for both perfect competition and monopolistic competition? a) Consumers have all accurate information about firms, product and prices b) these are low barriers to enter and exit the market c) all firms sell the exact same product d) the producers have absolutely no control over the price they chaarrow_forward
- For market failure unit (market power). In the long run graph for monopolistic competition, firms are no longer earning abnormal profit due to low barriers to entry as there are more similar goods on the market, lowering demand, causing them to earn normal profits, however, shouldn't that cause MR to be equal to AR (demand curve), similar to the normal profit in perfect competition? Why is MR less than AR here when it is earning normal profit?arrow_forwardThe market for Banh Mi in Auckland CBD consists of 6 restaurants operating in monopolistic competition. Suppose that these firms face monthly fixed costs of $5,000 and marginal costs of $3. a) Draw the average cost and marginal cost curves for a representative firm. b) If the short run market price is $6 and each firm sells 2000 units per month, what will occur in the long run? Explain and show on a graph. c) Suppose that Banh Mi become more popular as a lunch option, and market demand increases. Explain the short run and long run effects on the market, including price, firm-level quantity and number of firms. Use graphs to explain your answer.arrow_forwardWhich of these businesses are in monopolistic competition? Two clothing shops, one selling women's clothing and the other selling kids' clothing Two agricultural producers, each selling a variety of kinds of citrus fruit Two pet stores, one of which sells dog products and the other of which sells bird products Two phone providers, each offering benefits to customers who switch to its servicearrow_forward
- Which of these businesses are in monopolistic competition? Two clothing shops, one selling women clothing and the other selling kids clothing Two agricultural producers, each selling a variety of kinds of citrus fruit Two pet stores, one of which sells dog products and the other of which sells bird products Two phone providers, each offering benefits to customers who switch to its servicearrow_forwardWhich of the following is a characteristic of monopolistic competition? Group of answer choices Same products Competition only over price Easy entry and exit. One firmarrow_forwardThe 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.arrow_forward
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