Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 11.1, Problem 2ST
To determine
Explain why the monopolistic competitors operate at excess capacity.
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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?
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- Why is product differentiation important in monopolistic competition?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_forwardImagine a scenario in which the fashion industry is suffering from monopolistic price gouging and a dwindling demandarrow_forward
- What is the relationship between product differentiation and monopolistic competition?arrow_forwardA monopolistically competitive firm maximize profit wherearrow_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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