Question 1

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Accepted Answer

When a monopolistically competitive firm cuts its price, it is likely to experience both a decrease in revenue due to the income effect (since its profit per unit is lower) and a increase in revenue due to the substitution effect (since more consumers will choose its product over competitors). However, it is not necessarily true that the increase in revenue from the substitution effect will be greater than the decrease in revenue from the income effect, so the statement that the firm will experience a net gain in revenue is false.

Question 2

Unlike a perfectly competitive firm,for a monopolistically competitive firm
A) price ≠ marginal cost for all output levels.
B) price ≠ marginal revenue for all output levels.
C) price ≠ average revenue for all output levels.
D) marginal revenue = marginal cost at the profit-maximizing output.

Accepted Answer

The answer of Unlike a perfectly competitive firm,for a monopolistically...

Question 3

If marginal revenue is negative then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

Accepted Answer

If marginal revenue is negative, it means that the additional revenue from selling one more unit of the good is less than the revenue that could have been earned by selling one less unit at the original price. Therefore, the revenue lost from receiving a lower price on all units sold at the original price is greater than the additional revenue from selling one more unit, resulting in a decrease in total revenue.

Question 4

Table 13-2
  
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?
A) It will fall.
B) It will increase.
C) It will remain constant.
D) This cannot be determined without information on its long-run demand curve.

Accepted Answer

In the long run, firms in monopolistically competitive markets will have zero economic profit, meaning that price will equal average total cost. In this case, the price will need to fall in order for Eco Energy to break even, as its marginal cost is higher than its average total cost at its current level of production.

Question 5

What is the profit-maximizing rule for a monopolistically competitive firm?
A) to produce a quantity that maximizes market share
B) to produce a quantity that maximizes total revenue
C) to produce a quantity such that marginal revenue equals marginal cost
D) to produce a quantity such that price equals marginal cost

Accepted Answer

In monopolistic competition, the firm faces a downward-sloping demand curve, so it can increase its sales volume by reducing the price. However, to make the profit-maximizing decision, the firm must take into account both the marginal revenue (MR) and marginal cost (MC) of producing one additional unit. The profit-maximizing rule for a monopolistically competitive firm is to produce a quantity such that marginal revenue equals marginal cost (MR=MC). This is because at the quantity where MR=MC, the firm is producing the level of output where the incremental revenue gained from producing one more unit exactly offsets the incremental cost of doing so, resulting in the highest possible profit.

Question 6

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Accepted Answer

In monopolistic competition, there are many competitors producing similar but not identical products. Therefore, if a firm raises its price, customers can easily switch to a substitute product offered by the competitors. Hence, the firm will lose some customers and may face a decrease in demand.

Question 7

Table 13-2
  
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?
A) $125
B) $140
C) $145
D) $150

Accepted Answer

To find the profit, we need to calculate total revenue (TR), total cost (TC), and then subtract TC from TR. To find TR, we multiply the price (given in the demand schedule) by the corresponding quantity demanded. To find TC, we add the fixed cost ($40) to the product of the variable cost per unit and the quantity produced.

For example, if the firm produces 5 units, TR is (5*$25)=$125 and TC is ($40+5*$12)=$100, resulting in a profit of $25.

Using this method for each possible level of production, we find that the maximum profit occurs at a quantity of 9 units, where TR is (9*$20)=$180 and TC is ($40+9*$10)=$130, resulting in a profit of $50. However, the question asks for the profit given the specific demand and cost schedules provided, which occurs at a quantity of 8 units:

TR(8) = 8*$22 = $176
TC(8) = $40 + 8*$11 = $128
Profit = TR(8) - TC(8) = $48

Therefore, Eco Energy's profit is $145 (not listed as an option, but closest to option C).

Question 8

Table 13-2
  
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 the output (Q)that maximizes profit and what is the price (P)charged?
A) P=$55; Q=5 cases
B) P=$50; Q=6 cases
C) P=$45; Q=7 cases
D) P=$40; Q=8 cases

Accepted Answer

To maximize profit, the firm should produce where marginal revenue (MR) equals marginal cost (MC). At an output of 6 cases, MR=MC=$50. This output level corresponds to a price of $50, which is the highest price that consumers are willing to pay at this output level. Therefore, the optimal output (Q) that maximizes profit is 6 cases, and the price (P) charged is $50 per case.

Question 9

Which of the following statements is true about marginal revenue?
A) If marginal revenue is zero, it means that quantity demanded falls to zero when a firm changes its price.
B) If marginal revenue is negative, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price.
C) If marginal revenue is positive, the additional revenue received from selling 1 more unit of the good is smaller than the revenue lost from receiving a lower price on all the units that could have been sold at the original price.
D) Marginal revenue increases as price falls and quantity sold increases.

Accepted Answer

If marginal revenue is negative, it means that the revenue gained from selling an additional unit is less than the revenue lost from lowering the price on all the units sold. This occurs when the demand curve is downward sloping, as each additional unit sold requires a lower price, hence reducing the overall revenue earned. If marginal revenue is positive, the revenue gained from selling an additional unit is greater than the revenue lost from lowering the price on all the units sold. Marginal revenue is not directly related to the quantity demanded falling to zero when a firm changes its price.

Question 10

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the total fixed cost of production? A) 0P₁aQ_a B) P₀adP₃ C) P₁bdP₃ D) That information cannot be determined from the graph.

Accepted Answer

The answer of Figure 13-3  
Figure 13-3 shows short-run...

Question 11

What are the most important differences between perfectly competitive markets and monopolistically competitive markets?

Accepted Answer

The answer of What are the most important differences between...

Question 12

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the loss made by the firm? A) the area P₀adP₃ B) the area P₁bcP₂ C) the area P₀acP₂ D) the area P₂cdP₃

Accepted Answer

The area P₂cdP₃ represents the loss made by the firm, as it is the area between the average total cost curve and the price level at which the firm is operating, below the break-even point.

Question 13

Explain the differences between total revenue,average revenue,and marginal revenue.

Accepted Answer

The answer of Explain the differences between total revenue,average revenue,and...

Question 14

Table 13-1
 
-Refer to Table 13-1.What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?
A) output effect = $24.00; price effect = $19.50
B) output effect = $6.50; price effect = $2.00
C) output effect = -$0.50; price effect = $5.00
D) output effect = $6.00; price effect = -$1.50

Accepted Answer

The answer of Table 13-1
 
-Refer to Table 13-1.What portion...

Question 15

Table 13-2
  
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 the marginal profit from producing and selling the 5th case?
A) $275
B) $145
C) $35
D) $20

Accepted Answer

The answer of Table 13-2
  
Eco Energy is a...

Question 16

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the total revenue made by the firm? A) 0P₀aQ_a B) 0P₁bQ_a C) 0P₂cQ_a D) 0P₃dQ_a

Accepted Answer

The answer of Figure 13-3  
Figure 13-3 shows short-run...

Question 17

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.If the firm represented in the diagram is currently producing and selling Q_a units,what is the price charged? A) P₀ B) P₁ C) P₂ D) P₃

Accepted Answer

The answer of Figure 13-3  
Figure 13-3 shows short-run...

Question 18

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the total variable cost of production? A) 0P₀aQ_a B) 0P₁bQ_a C) P₀abP₁ D) P₁bdP₃

Accepted Answer

The area that represents the total variable cost of production is the triangle between the origin (0), the point where the total variable cost curve (TVC) intersects the y-axis (11), and the point where the marginal cost curve (MC) intersects the x-axis (10). This area is indicated by the shaded region labeled "a" in the graph. Option B correctly identifies this area as 0P₁bQ_a.

Question 19

A monopolistically competitive firm maximizes profit where
A) price = marginal revenue.
B) price > marginal cost.
C) marginal revenue > average revenue.
D) total revenue > marginal cost.

Accepted Answer

A monopolistically competitive firm maximizes profit where price is greater than marginal cost. This is because at the profit-maximizing quantity, marginal revenue is equal to marginal cost, and price is greater than average total cost. Thus, the firm can charge a markup over marginal cost and still earn positive economic profits.

Question 20

Table 13-1
 
-Refer to Table 13-1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?
A) output effect = $3.00; price effect = $0.50
B) output effect = $1.50; price effect = $2.00
C) output effect = $5.50; price effect = -$2.00
D) output effect = $4.00; price effect = -$0.50

Accepted Answer

The answer of Table 13-1
 
-Refer to Table 13-1.What portion...

Quiz 13: Monopolistic Competition: The Competitive Model in a More Realistic Setting

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Unlike a perfectly competitive firm,for a monopolistically competitive firm

If marginal revenue is negative then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

Table 13-2 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?

What is the profit-maximizing rule for a monopolistically competitive firm?

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Table 13-2 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?

Table 13-2 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 the output (Q) that maximizes profit and what is the price (P) charged?

Which of the following statements is true about marginal revenue?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the total fixed cost of production?

What are the most important differences between perfectly competitive markets and monopolistically competitive markets?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the loss made by the firm?

Explain the differences between total revenue,average revenue,and marginal revenue.

Table 13-1 -Refer to Table 13-1.What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?

Table 13-2 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 the marginal profit from producing and selling the 5th case?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the total revenue made by the firm?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.If the firm represented in the diagram is currently producing and selling Q_a units,what is the price charged?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the total variable cost of production?

A monopolistically competitive firm maximizes profit where

Table 13-1 -Refer to Table 13-1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

Quiz 13: Monopolistic Competition: The Competitive Model in a More Realistic Setting

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a loss in revenue due to the income effect and a gain in revenue due to the substitution effect.

Unlike a perfectly competitive firm,for a monopolistically competitive firm

If marginal revenue is negative then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

Table 13-2 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?

What is the profit-maximizing rule for a monopolistically competitive firm?

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Table 13-2 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?

Table 13-2 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 the output (Q) that maximizes profit and what is the price (P) charged?

Which of the following statements is true about marginal revenue?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the total fixed cost of production?

What are the most important differences between perfectly competitive markets and monopolistically competitive markets?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the loss made by the firm?

Explain the differences between total revenue,average revenue,and marginal revenue.

Table 13-1 -Refer to Table 13-1.What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?

Table 13-2 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 the marginal profit from producing and selling the 5th case?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the total revenue made by the firm?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.If the firm represented in the diagram is currently producing and selling Qa units,what is the price charged?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.What is the area that represents the total variable cost of production?

A monopolistically competitive firm maximizes profit where

Table 13-1 -Refer to Table 13-1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

Figure 13-3 Figure 13-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 13-3.If the firm represented in the diagram is currently producing and selling Q_a units,what is the price charged?