ECO-4 Lecture Notes - Lecture 27: Product Differentiation, Car Rental, Monopolistic Competition

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lemonwater-buffalo623

12 Sep 2020

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Marginal revenue equals marginal cost & charges price that buyers are willing to pay for that quantity (similar to single-price monopoly) Key difference is in long run :zero economic profit. As a firm earns economic profit, more firms enter the market. Demand and marginal revenue for the firm therefore decreases = zero economic profit. If firm is incurring economic loss, exit will occur = demand curves shift rightwards = zero economic profit. When all firms are making economic profit = no incentive for new firms to enter. Two key differences in mc & pc. A firm has excess capacity if it produces below its efficient scale : quantity @ which average total cost is a minimum the quantity @ the bottom of the u-shaped atc curve. Atc is lowest possible only in perfect competition b/c of perfectly elastic demand. They could sell more by cutting their prices, but they would then incur losses.

Related Questions

Which of the following is/are NOT necessary condition(s) for long-run equilibrium under perfect competition (select all that apply)?

A. No firm has an incentive to enter/exit the market.

B. Producer surplus for each firm equals zero.

C. At least some firms are selling at a price above marginal cost

D. Each firm earns zero economic profit

E. Each firm is maximizing profit.

byzantiumalligator982

1. If the price faced by a competitive firm is greater than its average variable cost, the firm:

a. should produce the output level where P=MC and it is making a positive profit
b. should produce that output level where P=MC and it is incurring loss
c. should produce that output level where P=MC and it may make a positive profit or incur a loss
d. none of the above

2. When a firm in perfect competition is maximizing profits and produces that level of output where price, marginal revenue, marginal cost, average total cost, long-run marginal cost, and long run average total cost are all equal, the firm:

a. earns a positive economic profit and it serves to signal other competing firms to enter the market
b. earns a positive economic profit that can be continued in the long run
c. earns zero economic profit and is in a long run equilibrium
d. incurs a loss and will shut own in the long run

emeraldrat340

A. A competitive firm

can consider only its location in setting the price.
must base its competitive price on product differentiation.
has the ability to set its own price.
must accept the price determined by the intersection of the market supply and demand curves.
has no supply curve.

B. If a firm is making an economic profit, then

the factors of production are being paid their opportunity costs.
there will be no change in the number of firms if the industry is perfectly competitive.
the factors of production are being paid less than their opportunity costs.
the factors of production are being paid more than their opportunity costs.
the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

marginal revenue is greater than price.
the elasticity of demand is constant.
marginal revenue decreases when the price decreases.
marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

shut down because economic profits are negative.
continue to produce as long as P > AVC.
continue to produce because accounting profits are positive.
set a higher price for its output.
set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

the marginal revenue curve.
perfectly inelastic.
always equal to marginal cost.
the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

monopolistic
oligopolistic
monopolistically competitive
perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

total revenue will fall if the price increases.
total revenue will be unchanged if the price increases.
total revenue will rise if the price increases.
the total supply will increase by an equal amount if demand increases.
the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

monopoly.
perfect competition.
theories of consumer behavior.
imperfect competition.
the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

perfect competition
monopolistic competition
oligopoly
monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

economic profits are zero.
TR > TC.
TR < TC.
P = AVC.
normal profits are zero.

brownlouse308

ECO-4 Lecture Notes - Lecture 27: Product Differentiation, Car Rental, Monopolistic Competition

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