Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 11, Problem 7QP
To determine
Explain product X made in a
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In which type of market, monopolistic or competitive market, is the equilibrium market price lower? Why?
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Is a monopolistically competitive firm productively efficient? How can you tell?
Offer one reason why a monopolistically competitive firm might be productively inefficient.
Is it allocatively efficient? How can you tell?
Offer one reason why a monopolistically competitive firm might be allocatively inefficient.
Why is a competitive market generally better for society than a monopolistic market?
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- what market inefficiencies derive from monopolies and monopolistic competition?arrow_forwardWhen 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_forward
- What factors hinder firms in monopolistic competition from earning economic profits in the long run?arrow_forwardI'm not sure if I am doing this question correctly.arrow_forwardIs the outcome in a monopolistically competitive market desirable from the standpoint of society? Can the government improve on the market outcome?arrow_forward
- 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 Quantityarrow_forwardHow do the results of a competitive industry compare with that of a monopolistic industry?arrow_forwardThe following graph represents a monopolistically competitive firm in long-run equilibrium. Place the black point (cross sign) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Next, place the grey star on the graph to indicate the point where the LRAC reaches a minimum. PRICE PER UNIT (Dollars) 500 450 400 350 300 250 200 150 100 50 MC 0 0 50 LRAC MR Demand 100 150 200 250 300 350 400 450 500 QUANTITY (Units) Monopolistically Competitive Outcome Minimum of the LRAC The long-run equilibrium price is $ (Hint: Use the graph to find the numeric value of the price at equilibrium.) The long-run equilibrium quantity is units. The LRAC curve is at its minimum at a quantity of The long-run equilibrium price is units. the marginal cost of producing the equilibrium output. ?arrow_forward
- Answer 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_forwardWhat is the relationship between product differentiation and monopolistic competition?arrow_forwardWhich of these is monopolistically competitive?arrow_forward
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