CAS EC 101 Study Guide - Midterm Guide: Monopolistic Competition, Perfect Competition, Demand Curve

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CAS EC 101 Full Course Notes

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Example: a gas station sells 1000 gals. of gas at . 00 per gallon. P < avc: how does the shut-down rule relate to the rm"s supply curve, shut down rule: company shut down if the price is less than average variable cost. Supply intercept with avc, below, shut down above no shutting down. Economic profit = tr total economic costs. = tr (explicit costs + implicit costs) = tr explicit costs implicit costs. < 0 exit occurs number of firms supply supply curve shifts l p* , q* , to 0: it"s making economics pro ts. Like perfect competition: many sellers, free entry and exit, downward sloping demand curve, product differentiation, demand curve much more elastic than monopoly. Like monopoly: what is the profit- maximizing q for a monopolistic competitor, what will happen in the long run if a monopolistic competitor is making pro ts loses? entry, make pro ts.

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.

Consider the following market demand schedule and total costs for a monopoly.

Q	P	TR	TC	MR	MC	Profit
0	45		4
1	40		9
2	35		19
3	30		39
4	25		61
5	20		91
6	15		130
7	10		172

a) Fill in the blanks.

b) How is the relationship between price and MR different between monopolistic and perfectly competitive markets?

c) Would the demand curve facing a monopolistic competitive market be more or less elastic than the demand curve facing a monopolist, why? Do firms in a monopolistically competitive market make long-run economic profits, why or why not?

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1. Which of the following is a firm in a perfectly competitive market?

1) a local corn farmer

2) the Tennessee Valley Authority, a large electricity producer that serves areas of five states

3) pizza delivery

4) a grocery store

5) Kate Spade, fashion designer

2. Compare a perfectly competitive market with a monopolistically competitive market.

The markup the firm charges in a monopolistically competitive market is ___________ the markup charged by a firm in a perfectly competitive market.

The firm's excess capacity in a monopolistically competitive market is ___________ the firm's excess capacity in a firm in a perfectly competitive market.

The efficiency of a monopolistically competitive market is ___________ the efficiency of a perfectly competitive market.

1)greater than; less than; greater than

2)greater than; greater than; less than

3)less than; less than; greater than

4)greater than; less than; equal to

3. In the long run, how is price related to marginal cost in both perfect competition and in monopolistic competition?

1) The long-run price is driven to marginal cost in both competitive markets and markets that are monopolistically competitive.

2 )Both markets can charge more than the marginal cost in the long run because products are differentiated in both markets.

3) Products are identical in perfectly competitive markets, so a firm must charge less than the marginal cost in order to differentiate itself. This is not true in monopolistically competitive markets where firms can charge more than marginal cost.

4) Because monopolistically competitive firms have market power, they set a price higher than marginal cost, while competitive firms cannot.

4. Titleist has an advertising slogan is "The #1 ball in golf" Consumers can also buy generic golf balls. The manufacturers of generic golf balls do not engage in any advertising. Assume that the average total cost of producing Titleist and generic golf balls is the same.

Which producer has a stronger incentive to maintain quality control in the production of golf balls?

1) Titleist

2) a manufacturer of generic golf balls

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CAS EC 101 Study Guide - Midterm Guide: Monopolistic Competition, Perfect Competition, Demand Curve

CAS EC 101 Full Course Notes

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