Exam 11: Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

In the Theory of Price, George Stigler points out that a monopolist is no less desirous of profits than a competitive firm. According to Stigler, what distinguishes the monopolist from other entrepreneurs?

In which industry(ies) are firms price takers?

If there is an economic profit in monopolistic competition, there is

In perfect competition, innovation is a means for a firm to

In perfect competition, the long-run outcome is always maximum efficiency.

Suppose potatoes were produced in Canada by many, many firms in perfect competition. In Belgium, only one firm produces potatoes for the Belgium market. Suppose as well that for the competitive firms and the monopoly, minimum ATC is the same. We would expect then, that in Belgium the price of potatoes is _____________ and ____________potatoes are produced and sold than in Canada.

In the short-run, profits will only exist for monopolistically competitive firms.

Without product differentiation, it would be very difficult for firms to develop brand loyalty.

Suppose Mara and David compete, selling fried green tomatoes in a perfectly competitive market. If Mara increases output,

The primary difference between monopolistic competition and perfect competition is the number of firms in the market.

Many firms have implicit and explicit costs. The difference between them is that implicit costs

If a monopolistically competitive firm decides that its cost and revenue data indicate that it should not shut down, it will end up producing where

Monopolistically competitive firms produce differentiated products.

-To maximize profit, the monopolist in Exhibit K-7 sets price at

-In Exhibit K-8, maximum efficiency is achieved when output is equal to

Think of a firm that has a monopoly producing milk. The firm's demand curve is

Suppose Ernie gives up his job as a financial advisor for pets, for which he earned $30,000 per year, to open up a store selling spot remover to Dalmatians. He invested $10,000 of his savings, which had been earning 5 percent interest. This year's revenues in the new business were $50,000 and explicit costs were $10,000. Calculate Ernie's economic profit.

Sam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000 as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the money in his new business. He uses a building he owns as a hangar that he could have rented out for $5,000 per year. He rents a computer for $1,200,buys office supplies for $500, rents an airplane for $6,000, pays $1,300 for fuel andmaintenance, and hires one worker for $30,000. Sam's total revenue from pilot training classes this year equaled $90,400. How did Sam's business do this year?

Economic profit is defined as

Entry of new firms into a market results in less product differentiation.