Key characteristics of a monopolistically competitive industry. Concept Introduction: Monopolistically Competitive Industry: Monopolistically competitive industries are the industries which have many firms and they offer similar or differentiated products and not a homogeneous or identical product.

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Answer 1

Question

Chapter 25, Problem 25.1LO

To determine

To Explain:

Key characteristics of a monopolistically competitive industry.

Concept Introduction:

Monopolistically Competitive Industry: Monopolistically competitive industries are the industries which have many firms and they offer similar or differentiated products and not a homogeneous or identical product.

Expert Solution & Answer

Explanation of Solution

Key characteristics of a Monopolistically Competitive Industry

Many firms: There are large number of buyers and sellers in a monopolistically competitive industry. This implies that each firm is having a larger number of competitors. Each firm is comparatively small considering the market size. This guarantees a competitive environment in the market with less control on price or quantity.
No Barrier of entry or exit: It is easy for any firm to enter or exit this industry. The barrier of entry or exit is low. If there is supernormal profit in the market, new firms will enter. This will lead to an increase in the supply and thus reduce the price. The firms will now realize only normal profit. Similarly with sustaining losses, some firms will exit which will reduce the supply and increase price. So the existing loss will turn to normal profits.
Differentiated Product: The firms sell differentiated products which are similar to each other but not identical. They are not perfect substitutes. Each product is slightly different from each other. This is known as product differentiation. Each firm in monopolistic market claims their product to be exclusive from the other. This gives them slight monopoly power and so they have a negatively sloped demand curve. Products are generally differentiated based on three categories.

Physical differences
Perceived differences
Differences in supports services

Price maker: Monopolistically competitive firms are price makers and not price takers. They intent to set their own price. Each firm claims to produce a unique product, so they can set the price of their own product. They need to take the industry set price. They can just follow it as a guideline. Thus they have a downward sloping demand curve.

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Problem 3 You are given the following demand for European luxury automobiles: Q=1,000 P-0.5.2/1.6 where P-Price of European luxury cars PA = Price of American luxury cars P, Price of Japanese luxury cars I= Annual income of car buyers Assume that each of the coefficients is statistically significant (i.e., that they passed the t-test). On the basis of the information given, answer the following questions 1. Comment on the degree of substitutability between European and American luxury cars and between European and Japanese luxury cars. Explain some possible reasons for the results in the equation. 2. Comment on the coefficient for the income variable. Is this result what you would expect? Explain. 3. Comment on the coefficient of the European car price variable. Is that what you would expect? Explain.

Problem 2: A manufacturer of computer workstations gathered average monthly sales figures from its 56 branch offices and dealerships across the country and estimated the following demand for its product: Q=+15,000-2.80P+150A+0.3P+0.35Pm+0.2Pc (5,234) (1.29) (175) (0.12) (0.17) (0.13) R²=0.68 SER 786 F=21.25 The variables and their assumed values are P = Price of basic model = 7,000 Q==Quantity A = Advertising expenditures (in thousands) = 52 P = Average price of a personal computer = 4,000 P. Average price of a minicomputer = 15,000 Pe Average price of a leading competitor's workstation = 8,000 1. Compute the elasticities for each variable. On this basis, discuss the relative impact that each variable has on the demand. What implications do these results have for the firm's marketing and pricing policies? 2. Conduct a t-test for the statistical significance of each variable. In each case, state whether a one-tail or two-tail test is required. What difference, if any, does it make to…

Answer 2

Question

Chapter 25, Problem 25.1LO

To determine

To Explain:

Key characteristics of a monopolistically competitive industry.

Concept Introduction:

Monopolistically Competitive Industry: Monopolistically competitive industries are the industries which have many firms and they offer similar or differentiated products and not a homogeneous or identical product.

Expert Solution & Answer

Explanation of Solution

Key characteristics of a Monopolistically Competitive Industry

Many firms: There are large number of buyers and sellers in a monopolistically competitive industry. This implies that each firm is having a larger number of competitors. Each firm is comparatively small considering the market size. This guarantees a competitive environment in the market with less control on price or quantity.
No Barrier of entry or exit: It is easy for any firm to enter or exit this industry. The barrier of entry or exit is low. If there is supernormal profit in the market, new firms will enter. This will lead to an increase in the supply and thus reduce the price. The firms will now realize only normal profit. Similarly with sustaining losses, some firms will exit which will reduce the supply and increase price. So the existing loss will turn to normal profits.
Differentiated Product: The firms sell differentiated products which are similar to each other but not identical. They are not perfect substitutes. Each product is slightly different from each other. This is known as product differentiation. Each firm in monopolistic market claims their product to be exclusive from the other. This gives them slight monopoly power and so they have a negatively sloped demand curve. Products are generally differentiated based on three categories.

Physical differences
Perceived differences
Differences in supports services

Price maker: Monopolistically competitive firms are price makers and not price takers. They intent to set their own price. Each firm claims to produce a unique product, so they can set the price of their own product. They need to take the industry set price. They can just follow it as a guideline. Thus they have a downward sloping demand curve.

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Answer 3

Question

Chapter 25, Problem 25.1LO

To determine

To Explain:

Key characteristics of a monopolistically competitive industry.

Concept Introduction:

Monopolistically Competitive Industry: Monopolistically competitive industries are the industries which have many firms and they offer similar or differentiated products and not a homogeneous or identical product.

Expert Solution & Answer

Explanation of Solution

Key characteristics of a Monopolistically Competitive Industry

Many firms: There are large number of buyers and sellers in a monopolistically competitive industry. This implies that each firm is having a larger number of competitors. Each firm is comparatively small considering the market size. This guarantees a competitive environment in the market with less control on price or quantity.
No Barrier of entry or exit: It is easy for any firm to enter or exit this industry. The barrier of entry or exit is low. If there is supernormal profit in the market, new firms will enter. This will lead to an increase in the supply and thus reduce the price. The firms will now realize only normal profit. Similarly with sustaining losses, some firms will exit which will reduce the supply and increase price. So the existing loss will turn to normal profits.
Differentiated Product: The firms sell differentiated products which are similar to each other but not identical. They are not perfect substitutes. Each product is slightly different from each other. This is known as product differentiation. Each firm in monopolistic market claims their product to be exclusive from the other. This gives them slight monopoly power and so they have a negatively sloped demand curve. Products are generally differentiated based on three categories.

Physical differences
Perceived differences
Differences in supports services

Price maker: Monopolistically competitive firms are price makers and not price takers. They intent to set their own price. Each firm claims to produce a unique product, so they can set the price of their own product. They need to take the industry set price. They can just follow it as a guideline. Thus they have a downward sloping demand curve.

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Answer 4

Question

Chapter 25, Problem 25.1LO

To determine

To Explain:

Key characteristics of a monopolistically competitive industry.

Concept Introduction:

Monopolistically Competitive Industry: Monopolistically competitive industries are the industries which have many firms and they offer similar or differentiated products and not a homogeneous or identical product.

Expert Solution & Answer

Explanation of Solution

Key characteristics of a Monopolistically Competitive Industry

Many firms: There are large number of buyers and sellers in a monopolistically competitive industry. This implies that each firm is having a larger number of competitors. Each firm is comparatively small considering the market size. This guarantees a competitive environment in the market with less control on price or quantity.
No Barrier of entry or exit: It is easy for any firm to enter or exit this industry. The barrier of entry or exit is low. If there is supernormal profit in the market, new firms will enter. This will lead to an increase in the supply and thus reduce the price. The firms will now realize only normal profit. Similarly with sustaining losses, some firms will exit which will reduce the supply and increase price. So the existing loss will turn to normal profits.
Differentiated Product: The firms sell differentiated products which are similar to each other but not identical. They are not perfect substitutes. Each product is slightly different from each other. This is known as product differentiation. Each firm in monopolistic market claims their product to be exclusive from the other. This gives them slight monopoly power and so they have a negatively sloped demand curve. Products are generally differentiated based on three categories.

Physical differences
Perceived differences
Differences in supports services

Price maker: Monopolistically competitive firms are price makers and not price takers. They intent to set their own price. Each firm claims to produce a unique product, so they can set the price of their own product. They need to take the industry set price. They can just follow it as a guideline. Thus they have a downward sloping demand curve.

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Answer 5

Chapter 25, Problem 25.1LO

To determine

To Explain:

Key characteristics of a monopolistically competitive industry.

Concept Introduction:

Monopolistically Competitive Industry: Monopolistically competitive industries are the industries which have many firms and they offer similar or differentiated products and not a homogeneous or identical product.

Expert Solution & Answer

Explanation of Solution

Key characteristics of a Monopolistically Competitive Industry

Many firms: There are large number of buyers and sellers in a monopolistically competitive industry. This implies that each firm is having a larger number of competitors. Each firm is comparatively small considering the market size. This guarantees a competitive environment in the market with less control on price or quantity.
No Barrier of entry or exit: It is easy for any firm to enter or exit this industry. The barrier of entry or exit is low. If there is supernormal profit in the market, new firms will enter. This will lead to an increase in the supply and thus reduce the price. The firms will now realize only normal profit. Similarly with sustaining losses, some firms will exit which will reduce the supply and increase price. So the existing loss will turn to normal profits.
Differentiated Product: The firms sell differentiated products which are similar to each other but not identical. They are not perfect substitutes. Each product is slightly different from each other. This is known as product differentiation. Each firm in monopolistic market claims their product to be exclusive from the other. This gives them slight monopoly power and so they have a negatively sloped demand curve. Products are generally differentiated based on three categories.

Physical differences
Perceived differences
Differences in supports services

Price maker: Monopolistically competitive firms are price makers and not price takers. They intent to set their own price. Each firm claims to produce a unique product, so they can set the price of their own product. They need to take the industry set price. They can just follow it as a guideline. Thus they have a downward sloping demand curve.

Answer 6

Chapter 25, Problem 25.1LO

To determine

To Explain:

Key characteristics of a monopolistically competitive industry.

Concept Introduction:

Monopolistically Competitive Industry: Monopolistically competitive industries are the industries which have many firms and they offer similar or differentiated products and not a homogeneous or identical product.

Expert Solution & Answer

Explanation of Solution

Key characteristics of a Monopolistically Competitive Industry

Many firms: There are large number of buyers and sellers in a monopolistically competitive industry. This implies that each firm is having a larger number of competitors. Each firm is comparatively small considering the market size. This guarantees a competitive environment in the market with less control on price or quantity.
No Barrier of entry or exit: It is easy for any firm to enter or exit this industry. The barrier of entry or exit is low. If there is supernormal profit in the market, new firms will enter. This will lead to an increase in the supply and thus reduce the price. The firms will now realize only normal profit. Similarly with sustaining losses, some firms will exit which will reduce the supply and increase price. So the existing loss will turn to normal profits.
Differentiated Product: The firms sell differentiated products which are similar to each other but not identical. They are not perfect substitutes. Each product is slightly different from each other. This is known as product differentiation. Each firm in monopolistic market claims their product to be exclusive from the other. This gives them slight monopoly power and so they have a negatively sloped demand curve. Products are generally differentiated based on three categories.

Physical differences
Perceived differences
Differences in supports services

Price maker: Monopolistically competitive firms are price makers and not price takers. They intent to set their own price. Each firm claims to produce a unique product, so they can set the price of their own product. They need to take the industry set price. They can just follow it as a guideline. Thus they have a downward sloping demand curve.

Answer 7

Chapter 25, Problem 25.1LO

To determine

To Explain:

Key characteristics of a monopolistically competitive industry.

Concept Introduction:

Monopolistically Competitive Industry: Monopolistically competitive industries are the industries which have many firms and they offer similar or differentiated products and not a homogeneous or identical product.

Answer 8

Expert Solution & Answer

Explanation of Solution

Key characteristics of a Monopolistically Competitive Industry

Many firms: There are large number of buyers and sellers in a monopolistically competitive industry. This implies that each firm is having a larger number of competitors. Each firm is comparatively small considering the market size. This guarantees a competitive environment in the market with less control on price or quantity.
No Barrier of entry or exit: It is easy for any firm to enter or exit this industry. The barrier of entry or exit is low. If there is supernormal profit in the market, new firms will enter. This will lead to an increase in the supply and thus reduce the price. The firms will now realize only normal profit. Similarly with sustaining losses, some firms will exit which will reduce the supply and increase price. So the existing loss will turn to normal profits.
Differentiated Product: The firms sell differentiated products which are similar to each other but not identical. They are not perfect substitutes. Each product is slightly different from each other. This is known as product differentiation. Each firm in monopolistic market claims their product to be exclusive from the other. This gives them slight monopoly power and so they have a negatively sloped demand curve. Products are generally differentiated based on three categories.

Physical differences
Perceived differences
Differences in supports services

Price maker: Monopolistically competitive firms are price makers and not price takers. They intent to set their own price. Each firm claims to produce a unique product, so they can set the price of their own product. They need to take the industry set price. They can just follow it as a guideline. Thus they have a downward sloping demand curve.

Answer 9

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Answer 10

Expert Solution & Answer

Answer 11

Ch. 25 - Prob. 25.1LO Ch. 25 - Prob. 25.2LO Ch. 25 - Prob. 25.3LO Ch. 25 - Prob. 25.4LO Ch. 25 - Prob. 25.1SC Ch. 25 - Prob. 25.2SC Ch. 25 - Prob. 25.3SC Ch. 25 - Prob. 25.4SC Ch. 25 - Prob. 1CTQ Ch. 25 - Prob. 2CTQ

Key characteristics of a monopolistically competitive industry. Concept Introduction: Monopolistically Competitive Industry: Monopolistically competitive industries are the industries which have many firms and they offer similar or differentiated products and not a homogeneous or identical product.

Explanation of Solution

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Chapter 25 Solutions