Exam 10: Monopolistic Competition : The Competitive Model in More Realistic Setting

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium?

A successful trademark is one that becomes a generic name for a product, for example, 'Kleenex' has become a generic term for tissues.

The entry and exit of firms in a monopolistically competitive market guarantee that

-Refer to Figure 10-5. The chocolate store represented in the diagram is currently selling Q_a units of candy at a price of P_a. Is this candy store maximising its profit and if it is not, what would you recommend to the firm?

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market, but by separate curves for a firm in a monopolistically competitive market?

-Refer to Figure 10-15. It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁. Why wouldn't a firm expand its output to Q₁?

Both the perfectly competitive firm and the monopolistically competitive firm produce at the output where marginal revenue equals marginal cost (MR = MC) but only the perfectly competitive firm achieves allocative efficiency. Explain why this is the case.

Assume price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximise profits the firm should

Which of the following is not an example of a monopolistically competitive market?

Does the fact that monopolistically competitive firms do not achieve productive efficiency or allocative efficiency mean that there is a significant loss in consumer welfare?

-Refer to Figure 10-4. Should the firm represented in the diagram continue to stay in business despite its losses?

A profit-maximising monopolistically competitive firm produces and sells an allocatively efficient quantity of output.

Assume that price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118, then to maximise profits the firm should increase its output.

-Refer to Table 10-4. Victoria's profit-maximising output is where

Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss?

Sparkle, one of many firms in the market for toothpaste, is in long-run equilibrium. Sparkle has a small market share and has been in business for a long time. a. Identify the market structure in which Sparkle operates. Explain your answer. b. What is Sparkle's profit or loss? Explain your answer. If you cannot determine the profit or loss, explain what information is missing. c. Draw a diagram showing Sparkle's demand curve, marginal revenue curve, average total cost curve and marginal cost curve. Label your diagram.

If a firm has excess capacity, it means

Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

-Refer to Figure 10-16 to answer the following questions. a. What is the profit-maximising output level? b. What is the profit-maximising price? c. What is the average total cost at the profit-maximising output level? d. What area represents the firm's profit? e. At which output level are economies of scale exhausted? f. Does this graph most likely represent the long run or the short run? Why?

-Refer to Figure 10-4. What is the area that represents the total fixed cost of production?