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ECON 1201 Lecture Notes - Lecture 28: Monopolistic Competition, Demand Curve, Product Differentiation

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Verified Note
whitegoose773
29 Nov 2018
School
UConn
Department
Economics
Course
ECON 1201
Professor
Owen Svalestad

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ECON 1201 Lecture Notes - Lecture 27: Monopolistic Competition, Perfect Competition, Product Differentiation

28

ECON 1201 Lecture Notes - Lecture 28: Monopolistic Competition, Demand Curve, Product Differentiation

29

ECON 1201 Lecture Notes - Lecture 29: National Safety Council, Coase Theorem, Network Effect

Document Summary

If firms are earning economic profits, new firms will want to enter the industry. This will reduce the demand curve facing each individual producer. In the long-run, each supplier will earn normal profits, and price will equal atc. Where atc = demand: covering your opportunity cost and making a small profit but not a killing. Monopolistically competitive can choose price while perfectly competitive cannot choose price (based on market) Price charged is higher with branding, quantities are less, and pc causes firms to produces at minimum average total cost. Firms in a monopolistically competitive industry have excess capacity: they produced less than the output at which average total cost is minimized. Allows you to be a price maker. The perfume industry: leading consumers by the nose. Only 3% of a perfume bottle"s cost is ingredients the rest is marketing and packaging.

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Related Questions

32. Which of the following is not a difference between monopolies and perfectly competitive markets?

A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.

C. Monopolies can earn profits in the long run while perfectly competitive firms break even.

D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

40. Which of the following statements is not correct?

A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.

C. Only competitive firms produce the welfare-maximizing level of output.

D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.

43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

A. the profits of the firm are negative.

B. firms are likely to leave this market in the long run.

C. the firm is currently maximizing its profit.

D. All of the above are correct.

Tell whether the following is true or false and explain why.

a. In the long-run, purely competitive firms and monopolistically competitive firms earn zero economic profit (normal profit) and both will produce allocatively efficient outputs.

b. Monopolistically competitive firms and oligopoly firms typically earn zero economic profit in the long-run.

c. The kinked demand model of oligopoly allows for the possibility that cost functions, including marginal cost, can shift without changing the quantity and price of profit-maximizing output.

d. Non-price competition refers to reductions in production costs that are not reflected in price reductions.

e. If a natural monopolist engages in marginal cost pricing, it typically will earn abnormal profits.


1.
If firms in a monopolistically competitive market are earningpositive profits,
A) firms will likely be subject to regulation.
B) barriers to entry will be strengthened.
C) some firms must exit the market.
D) new firms will enter the market.
2.

Panel c in the set of figures shown is consistent with a firm in amonopolistically competitive market that is


A) earning profit and is in both short-run and long-runequilibrium.
B) earning economic profit and is in short-run equilibrium, but notlong-run equilibrium.
C) earning profit and is in long-run equilibrium, but not short-runequilibrium.
D) earning a negative profit and is not in equilibrium.
3.
When a profit-maximizing firm in a monopolistically competitivemarket is producing the long-run equilibrium quantity,
A) its marginal revenue will exceed its marginal cost.
B) its average revenue will equal its marginal cost.
C) it will be earning positive economic profits.
D) its demand curve will be tangent to its average-total-costcurve.
4.
Monopolistic competition differs from perfect competition becausein monopolistically competitive markets
A) each of the sellers offers a somewhat different product.
B) strategic interactions between firms is vitally important.
C) there are barriers to entry.
D) all firms can eventually earn economic profits.
5.
The free entry and exit of firms in a monopolistically competitivemarket guarantees that
A) economic losses can persist into the long run, but not economicprofits.
B) both economic profits and economic losses can persist into thelong run.
C) economic profits can persist into the long run, but not economiclosses.
D) both economic profits and economic losses disappear in the longrun.
6.


Panel (a) shows a profit-maximizing monopolistically competitivefirm that is

A) All answers are correct
B) earning a zero profit.
C) charging a price that is equal to average total cost.
D) in long-run equilibrium.
7.
Since a firm in a monopolistically competitive market faces a
A) perfectly elastic demand curve, it will always operate withexcess capacity.
B) downward-sloping demand curve, it will always operate atefficient scale.
C) perfectly inelastic demand curve, it will always operate atefficient scale.
D) downward-sloping demand curve, it will always operate withexcess capacity.
8.
In a monopolistically competitive market,
A) firms can enter or exit the market without restriction.
B) each firm takes the price of its product as given.
C) each firm produces a product that is essentially identical tothe products of other firms in the market.
D) there are only a few sellers.
9.
The fact that there is a great deal of advertising of men’s shavingproducts indicates that
A) it costs firms very little to produce those products.
B) the market for those products is perfectly competitive.
C) those products are highly differentiated.
D) All answers are correct
10.
A profit-maximizing firm in a monopolistically competitive marketdiffers from a firm in a perfectly competitive market because thefirm in the monopolistically competitive market
A) has no barriers to entry.
B) faces a downward-sloping demand curve for its product.
C) faces a horizontal demand curve at the market clearingprice.
D) is characterized by market share maximization.