Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 15, Problem 3.3P
To determine
The relationship between price and marginal revenue for a
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The 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.
?
The 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.
Economics
Chapter 15 Solutions
Principles of Economics (12th Edition)
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- Suppose that in the short run the firms in a monopolistically competitive industry are making an economic profit. what is likely to happen in this market over the long run? Will the firms be able to sustain this economic profit over the long run? Describe the adjustment process in this market towards the long run equilibrium in detail.arrow_forwardIf 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? Explain your answer 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. What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits? Offer two obstacles to oligopolists cooperating. 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. Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a…arrow_forwardSuppose that a company operates in the monopolistically competitive market for denim jackets. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. ? 100 PRICE (Dollars per jacket) 8 20 60 50 X ATC 20 MC MR 2 2 2 2 10 0 0 30 40 50 60 70 QUANTITY (Thousands of jackets) 10 20 80 Demand 90 100 Mon Comp Outcome Min Unit Costarrow_forward
- Suppose that a company operates in the monopolistically competitive market for denim jackets. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. ? PRICE (Dollars per jacket) 100 90 80 70 60 40 30 20 MC 10 ATC MR Demand 0 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of jackets) + Mon Comp Outcome Min Unit Cost Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that. firm. Further, a monopolistically competitive firm's average total cost in long-run equilibrium is at the optimal quantity for each the minimum average total cost.arrow_forwardAnswer all four questions! 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.arrow_forwardWhat are the most important differences between perfectly competitive markets and monopolistically competitive markets? Give two examples of products sold in perfectly competitive markets and two examples of products sold in monopolistically competitive markets.arrow_forward
- The graph below is for a profit-maximizing firm in monopolistic competition. Place point A at the firm's output and price combination. Place point B at the firm's output and price combination if it were in a perfectly competitive industry. Then answer the questions. s 10 9 8 7 6 5 4 3 2 1 4 5 Quantity MR 6 8 MC ATC Demand 9 10arrow_forwardSuppose that a firm produces wooden train engines in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. PRICE (Dollars per engine) 100 90 80 70 60 50 40 30 20 10 MC 0 0 10 O True ATC Demand False MR 20 30 40 50 60 70 80 QUANTITY (Thousands of engines) 90 100 Mon Comp Outcome Min Unit Cost True or False: This indicates that there is excess capacity in the market for engines. Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that optimal quantity. Furthermore, the quantity the firm produces in long-run equilibrium…arrow_forwardSuppose that a firm produces wooden train engines in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. ? PRICE (Dollars per engine) 100 90 80 70 60 50 40 30 20 10 0 0 II MC + 10 Ⓒ True O False MR ATC I Demand I 20 30 40 50 60 70 QUANTITY (Thousands of engines) 80 90 100 Mon Comp Outcome Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that P = ATC at the optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is less than the efficient scale. Min Unit Cost True or…arrow_forward
- encient? Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. 3; 100 50 90 80 88 + 70 70 60 550 40 PRICE (Dollars per razor) 30 30 10 MC 20 20 0 10 10 ATC +. ? Mon Comp Outcome MR Demand 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of razors) Min Unit Costarrow_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_forwardSuppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. 100 90 80 Mon Comp Outcome 70 Min Unit Cost 50 ATC 40 30 20 10 MC MR Demand 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of bats) Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that ▼ at the optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is the efficient scale. PRICE (Dollars per bat)arrow_forward
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