Exam 13: Monopolistic Competition: the Competitive Model in a More Realistic Setting

Firms such as Taco Bell and Chipotle operate hundreds of restaurants nationwide while firms such as El Pollo Loco operates only in five states.How would you characterize these stores?

Monopolistically competitive firms can differentiate their products

Why do most firms in monopolistic competition typically make zero profit in the long run?

A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.

Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-4.Should the firm represented in the diagram continue to stay in business despite its losses?

Central Grocery in New Orleans is famous for its muffaletta,a large round sandwich filled with deli meats and topped with a tangy olive salad.Suppose the following table represents cost and revenue data for Central Grocery. Muffalettas Total Marginal Total Total Sold per Price Revenue Revenue Cost Marginal Cost Day (P) (TR) (MR) (TC) Cost (MC) (ATC) Profit 0 \ 15 \ 0 --- \ 12 --- --- -\ 12 1 14 14 \ 14 18 \ 6 \ 18.00 -4 2 13 26 12 20 2 10.00 6 3 12 36 10 21 1 7.00 15 4 11 44 8 23 2 5.75 21 5 10 50 6 26 3 5.20 24 6 9 54 4 30 4 5.00 24 7 8 56 2 35 5 5.00 21 8 7 56 0 42 7 5.25 14 10 6 54 -2 52 10 5.70 2 5 50 -4 78 26 7.80 -28 Illustrate this data by graphing the demand,MR,MC,and ATC curves.Identify the profit-maximizing price and quantity,and show the area representing the total profit received by Central Grocery.

A major difference between monopolistic competition and perfect competition is

If firms in a monopolistically competitive industry are making profits in the short run

The key characteristics of a monopolistically competitive market structure include

Quantity (cases) Price (dollars) Total Revenue (dollars) Total Cost (dollars) 1 \ 75 \ 75 \ 60 2 70 140 85 3 65 195 105 4 60 240 115 5 55 275 130 6 50 300 155 7 45 315 190 8 40 320 230 9 35 315 280 Eco Energy is a monopolistically competitive producer of a sports beverage called Power On.Table 13-2 shows the firm's demand and cost schedules. -Refer to Table 13-2.What is Eco Energy's profit?

The marginal revenue of a monopolistically competitive firm

What is meant by "excess capacity"? How does it relate to consumer utility?

To maximize their profits and defend those profits from competitors,monopolistically competitive firms must

Figure 13-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. -Refer to Figure 13-7.Which of the following is the area that represents the profit or loss experienced by the firm?

One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?

Draw a graph that shows the impact on a firm's profit when it increases spending on advertising and the increased advertising has no effect on the demand for a firm's product.

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm

If price exceeds average variable cost but is less than average total cost,a firm

Quantity (cases) Price (dollars) Total Revenue (dollars) Total Cost (dollars) 1 \ 75 \ 75 \ 60 2 70 140 85 3 65 195 105 4 60 240 115 5 55 275 130 6 50 300 155 7 45 315 190 8 40 320 230 9 35 315 280 Eco Energy is a monopolistically competitive producer of a sports beverage called Power On.Table 13-2 shows the firm's demand and cost schedules. -Refer to Table 13-2.What is likely to happen to the product's price in the long run?

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