Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Chapter 10, Problem 9RQ
If the firms in a
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If the firms in a monopolistically competitive market are earning economic profits or losses in the short run, would you expect them to continue doing so in the long run? Why?
What factors hinder firms in monopolistic competition from earning economic profits in the long run?
Monopolistically competitive firms could increase the quantity they produce and potentially lower the average total cost of production. Why don't they do so?
Chapter 10 Solutions
Principles of Economics 2e
Ch. 10 - Suppose that, due to a successful advertising...Ch. 10 - Continuing with the scenario in question 1, in the...Ch. 10 - Consider the curve in the figure below, which...Ch. 10 - Sometimes oligopolies in the same industry are...Ch. 10 - What is the relationship between product...Ch. 10 - How is the perceived demand curve for a...Ch. 10 - How does a monopolistic competitor choose its...Ch. 10 - How can a monopolistic competitor tell whether the...Ch. 10 - If the firms in a monopolistically competitive...Ch. 10 - Is a monopolistically competitive firm...
Ch. 10 - Will the firms in an oligopoly act more like a...Ch. 10 - Does each individual in a prisoners dilemma...Ch. 10 - What stops oligopolists from acting together as a...Ch. 10 - Aside from advertising, how can monopolistically...Ch. 10 - Make a case for why monopolistically competitive...Ch. 10 - Would you rather have efficiency or variety? That...Ch. 10 - Would you expect the kinked demand curve to be...Ch. 10 - When OPEC raised the price of oil dramatically in...Ch. 10 - Andreas Day Spa began to offer a relaxing...Ch. 10 - May and Raj me the only two growers who provide...Ch. 10 - Jane and Bill are apprehended for a bank robbery....
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Similar questions
- 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?arrow_forwardSuppose 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?arrow_forwardAn industry said to be characterized by monopolistic competition is the apparel industry. Suppose you were hired as a consultant by a firm in this industry. How would you advise the firm as to the levels of output, price, input usage, and advertising? What problems might the firm encounter?arrow_forward
- Which type of a firm, monopolistically competitive or a monopoly, will have a greater incentive to advertise its product? Please give an explanation.arrow_forwardImagine a scenario in which the fashion industry is suffering from monopolistic price gouging and a dwindling demandarrow_forwardAnswer the question: Aside from advertising, how can monopolistically competitive firms increase demand for their products? What effect would doing this have on the elasticity of the firm’s perceived demand curve? Explain your answers.arrow_forward
- Is the outcome in a monopolistically competitive market desirable from the standpoint of society? Can the government improve on the market outcome?arrow_forwardIn the long run, the positive economic profits earned by the monopolistic competitor will attract a response either from existing firms in the industry or firms outside. As those firms capture the original firm’s profit, what will happen to the original firm’s profit-maximizing price and output levels? Show on a grapharrow_forwardSuppose the figure to the right represents the market for a particular brand of shampoo, such as L'Oreal, Lancome, or Maybelline. Assume the market is monopolistically competitive and is in long-run equilibrium. How much excess capacity does the firm have? The monopolistically competitive firm's excess capacity is thousand bottles of shampoo. (Enter your response as an integer.) C Price and cost (per bottle) 2.00- Q 1.80- MC Q ATC 1.60- 1.40- 1.20- 1.00- 0.80- 0.60- 0.40- 0.20- 0.00+ 0 2 MR D 4 6 8 10 12 14 16 18 20 Quantity (shampoo bottles in thousands)arrow_forward
- Because of substantial barriers to entry, monopolistically competitive firms can easily earn long run economic profits. is this true or falsearrow_forwardWhat effect would a successful advertising campaign differentiating a product from one's competitors have on a monopolistically competitive firm's demand and its elasticity of demand? What does this do to the firm's profits? You may have heard the slogan: "advertising doesn't cost, it pays?" Is that sometimes true?arrow_forwardDescribe why monopolistically competitive firms find it important to establish brand loyalty. How does brand loyalty impact market outcomes?arrow_forward
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