Question 1

Figure 13-9 
-Refer to Figure 13-9.Figure 13-9 depicts a monopolistically competitive barber shop.Use the diagram to answer the following questions.
a.Suppose the average variable cost of production is $15 when output equals 110 haircuts and $15.25 when output equals 140 haircuts.If the firm wants to maximize its profit or minimize its losses,how many haircuts will it produce and what price should it charge? Explain your answer.
b.Calculate the firm's profit or loss.
c.What is likely to happen in this industry over time as it moves to its new long-run equilibrium?
d.Suppose the barber shop depicted in the diagram remains in the industry.Is this barber shop likely to produce this same quantity of haircuts as in part (a)in the long run?

Accepted Answer

The answer of Figure 13-9 
-Refer to Figure 13-9.Figure 13-9...

Question 2

What is the difference between zero accounting profit and zero economic profit?

Accepted Answer

The answer of What is the difference between zero accounting...

Question 3

A monopolistically competitive industry that earns economic profits in the short run will face a more elastic demand curve in the long run.

Accepted Answer

In the long run, other firms can enter the market and offer products that are similar to the profitable firm's, increasing competition and making it easier for consumers to switch to substitutes. This increased competition leads to a more elastic demand curve for the profitable firm in the long run.

Question 4

Figure 13-8 
-Refer to Figure 13-8 to answer the following questions.
a.What is the profit-maximizing output level?
b.What is the profit-maximizing price?
c.What is the average total cost at the profit-maximizing 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?

Accepted Answer

The answer of Figure 13-8 
-Refer to Figure 13-8 to...

Question 5

As customers switch from renting DVDs to downloading or streaming movies from the Internet,Netflix will likely find it ________ to remain profitable as they face ________ competition with streaming movies than with mail order DVD rental.

Accepted Answer

As customers switch to downloading or streaming movies, Netflix will likely face more competition with streaming movies than with mail order DVD rentals. This will make it harder for them to remain profitable.

Question 6

Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?

Accepted Answer

The answer of Which of the following is not a...

Question 7

How does the long run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

Accepted Answer

The answer of How does the long run equilibrium of...

Question 8

Long-run equilibrium under monopolistic competition is similar to that under perfect competition in that

Accepted Answer

The answer of Long-run equilibrium under monopolistic competition is similar...

Question 9

Is a monopolistically competitive firm allocatively efficient?

Accepted Answer

The answer of Is a monopolistically competitive firm allocatively efficient?
...

Question 10

For allocative efficiency to hold,

Accepted Answer

Allocative efficiency occurs when the price of goods equates to the marginal cost of production. This ensures that the resources are being allocated in the most efficient way by producing goods that have the greatest value to consumers at the lowest possible cost. Therefore, in order for allocative efficiency to hold, price must equal the marginal cost of the last unit produced, which is option B.

Question 11

Is a monopolistically competitive firm productively efficient?

Accepted Answer

A monopolistically competitive firm is not productively efficient because it does not produce at minimum average total cost. This is because such firms have some degree of market power, which allows them to charge a price above their cost of production, resulting in a higher average total cost.

Question 12

If a monopolistically competitive firm breaks even,the firm is earning as much in this industry as it could in any other comparable industry.

Accepted Answer

The answer of If a monopolistically competitive firm breaks even,the...

Question 13

Some of the advantages Netflix had over companies like Blockbuster and Wal-Mart in successfully competing in the mail order DVD rental business include all of the following except

Accepted Answer

The statement lists advantages that Netflix had over Blockbuster and Wal-Mart in the mail order DVD rental business. However, it does not list an extensive system of storefront operations as an advantage that Netflix had. In fact, this was a key feature of Blockbuster's business model, which Netflix did not have.

Question 14

For productive efficiency to hold,

Accepted Answer

Productive efficiency is achieved when a firm produces at the minimum average total cost. This means that the cost of producing each unit is as low as possible, leading to a lower price for consumers. Therefore, for productive efficiency to hold, average total cost must be minimized in production.

Question 15

Economists agree that a monopolistically competitive market structure

Accepted Answer

Economists generally agree that monopolistic competition benefits consumers because firms in this market structure try to differentiate their products, which creates a wider range of consumer choice and caters to different consumer preferences. While it is true that consumers pay a price higher than marginal cost, this is true in most market structures, including perfectly competitive ones. Additionally, while some argue that monopolistic competition may lead to a waste of resources, others argue that it encourages innovation and product differentiation. It is not true that monopolistic competition will necessarily lead to the elimination of excess capacity if firms invest more in differentiating their products.

Question 16

If a firm has excess capacity,it means

Accepted Answer

Excess capacity means that the firm is not producing its minimum efficient scale of output. This is because the firm has the ability to produce more output at a lower cost due to the presence of idle resources.

Question 17

In theory,in the long run,monopolistically competitive firms earns zero profits.However,in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

Accepted Answer

By identifying new markets and developing products for those markets, a monopolistically competitive firm can differentiate its products from competitors and create a new niche market. This allows the firm to charge a higher price and earn profits in the short to medium term. However, as more firms enter the market and compete for these niche markets, the profits will eventually be eroded and the firm will return to earning zero profits in the long run. Gradually increasing the mark up on goods (A) and finding a narrow market niche (D) may provide some temporary relief, but ultimately do not address the underlying competitive pressures in a monopolistically competitive market. Lowering prices to expand market share (B) may increase revenue in the short term, but it will lead to lower profits and potentially enter a price war with competitors.

Question 18

A monopolistically competitive industry that earns economic profits in the short run will be able to expand its market share even if the market size remains constant.

Accepted Answer

The answer of A monopolistically competitive industry that earns economic...

Question 19

Consumers benefit from monopolistic competition by

Accepted Answer

In monopolistic competition, firms differentiate their products to appeal to specific niches in the market, creating more options for consumers to choose from. This allows consumers to find products that are more closely suited to their individual preferences and needs. However, this does not necessarily mean that prices will be the lowest possible or that all consumers will pay the same price, as prices will still be influenced by supply and demand factors in the market. The quality of products and prices will also vary depending on the specific company and product being considered.

Question 20

Figure 13-10 
-Refer to Figure 13-10.What is the productively efficient output for the firm represented in the diagram?

Accepted Answer

The answer of Figure 13-10 
-Refer to Figure 13-10.What is...

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