question
A monopolistically competitive firm maximizes profit where
answer
price > MC
question
When a monopolistically competitive firm lowers it price one bad thing happens to the firm. What is this bad thing?
answer
the price effect
question
A monopolistically competitive firm faces a downward sloping demand curve because
answer
of product differentiation
question
What is the amount of the firms loss at its optimal output level
0, 50,45,41
0, 50,45,41
answer
$41
question
What is the allocatively efficient output for the firm represented in the diagram?
(hint:on demand curve)
(hint:on demand curve)
answer
Q3
question
What portion of the MR of the 5th unit is due to the output effect and what portion is due to the price effect?
(hint: output effect = price at that quantity)
(hint: output effect = price at that quantity)
answer
Output effect = $5.50 ; Price effect = -$2.00
question
When a monopolistically competitive firm cuts its price to increase its sales, it experiences a gain in revenue due to the
answer
output effect
question
What is the best course of action for the firm in the short run?
answer
It should stay in business because it covers some of its fixed costs.
question
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. The table to the right shows the firm's demand and cost schedules. What is likely to happen to the products price in the long run?
answer
It will fall
question
When a credit card company offers different services with its card, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to
answer
convince customers that its card has greater value than those offered by the rival firms.
question
The key characteristics of a monopolistically competitive market structure include
answer
sellers selling similar but differentiated products
question
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. The table to the right shows the firm's demand and cost schedules. What is the most output the Eco Energy can produce that will maximize profit and what is the price charged?
answer
P=$50 , Q= 6 cases
question
If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run?
answer
Some firms will exit the market causing the demand to increase for firms remaining in the market.
question
You have just opened a new italian restaurant in your hometown where there are three other italian restaurants. Your restaurant is doing a brisk business and you attribute your success to your distinctive northern italian cuisine using locally grown organic produce. What is likely to happen to your business in the long run?
answer
Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero.
question
You have just opened a new italian restaurant in your hometown where there are three other italian restaurants. Your restaurant is doing a brisk business and you attribute your success to your distinctive northern italian cuisine using locally grown organic produce. What is likely to happen in the restaurant market in your hometown after you open?
answer
The demand curve facing each restaurant owner becomes more elastic .
question
For the monopolistically competitive firm,
answer
P=AR>MR
question
The firm represented in the diagram makes
answer
makes zero economic profit
question
Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. What is the area that represents the total fixed cost of production?
answer
P1bdP3
question
Which of the following statements is true about marginal revenue?
answer
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
question
In the short run, a profit maximizing firm's decision to produce should be guided by whether
answer
its total revenue covers its variable cost.
question
The table to the right shows the demand and cost schedules for a monopolistically competitive firm.
What is its average variable cost of production at its optimal output level?
What is its average variable cost of production at its optimal output level?
answer
$14.75
Find where MC = MR or close to it
Take VC / Q
Find where MC = MR or close to it
Take VC / Q
question
If this firm continue to produce, what is likely to happen to the product's price in the long run?
answer
It will increase.
question
A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except
answer
a decrease in the number of rival products.
question
If a firm faces a downward−sloping demand curve,
answer
it must reduce its price to sell more units.
question
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
answer
some of its customers have switched to purchasing the products of new entrants in the market.
question
One reason why the coffeehouse market is competitive is that
answer
barriers to entry are low.
question
A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until
answer
the firm's demand curve is tangent to its average total cost curve.
question
A monopolistically competitive industry that earns economic profits in the short run will
answer
experience the entry of new rival firms into the industry in the long run.
question
Refer to the diagram to the right. What is the allocatively efficient output for the firm represented in the diagram?
Where MC = D
Where MC = D
answer
...
question
In the long run, if price is less than average cost,
answer
there is an incentive for firms to exit the market.
question
Which of the following characteristics is not common to monopolistic competition and perfect competition?
answer
Firms take market prices as given.
question
What is the area that represents the total revenue made by the firm?
answer
P value that hits demand curve
question
If the price exceeds the average variable cost but is less than the average total cost, a firm
answer
should stay in business for a while longer until its fixed costs expire.
question
If the demand curve for a firm is downward−sloping, its marginal revenue curve
answer
will lie below the demand curve.
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