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Demand and Total Revenue
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Price times Quantity
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Market Revenue
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Change in Total Revenue / Change in Quantity
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Monopolistic Competition is
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Downward Sloping
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Profit Maximization is
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MR = MC
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Marginal Revenue is always
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below Demand
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Profit maximizing price is $75. ATC is $25 so,
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The firm makes an economic profit of $6250 a day. ($50 * 125)
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Why is Monopolistic Competition different than Monopoly?
answer
Free Entry and Exit (will create a decrease for demand in the firms product)
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When Demand decreases?
answer
Price decreases until there are normal profits or economic profit equals zero.
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Difference between Perfect Competition and Monopolistic Competition is?
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1. Excess Capacity (Marginal Cost = Average Total Cost at minimum ATC). 2. Price Markup
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Monopolistic Competition - Long Run?
answer
Lower Quantity and Higher price (P > MR)
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Advertising and Marketing, How does this affect Monopolistic Competition?
answer
Can increase demand by advertising.
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Advertising costs are?
answer
1. Fixed cost. 2. Raise the ATC of productions. 3. Increases by greater amount at small outputs. 4. By increasing the quantity bought, advertising can lower average total cost.
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Monopolistic competition is a market structure in which?
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a large number of firms compete.
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Firms in monopolistic competition determine the profit maximizing level of output by producing?
answer
When marginal revenue equals marginal cost
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Advertising cost is a _____ cost that is incurred by _____?
answer
Fixed; monopolistically competitive firms
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How do advertising and other selling costs affect a firm?
answer
They shift the average total cost curve upward.
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The players in a game theory situation often DO NOT act in their joint interest because?
answer
It is not in each player's self interest to cooperate.
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What is the conclusion in the prisoner's dilemma?
answer
Two prisoners acting in their own best interest harm their joint interest.
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Which of the following statements are true of Monopolistic Competition?
answer
Firms receives zero economic profits in the long-run and market prices are higher and output is lower than under perfect competition.
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In monopolistic competition, each firm supplies a small part of the market. This occurs because?
answer
There are a large number of firms.
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If a monopolistically competitive seller's marginal cost is $3.56, the firm will decrease its output if?
answer
it marginal revenue is less than $3.56.
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