Characteristics of Monopolistic Competition) Why is a firm in monopolistic competition said to be competitive? In what sense is that firm monopolistic?
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- 7. short run. (18) The graph below shows the demand curve and marginal revenue curve for a monopolistic competitive firm in the Complete the graph and illustrate this monopolistically competitive firm earning a positive economic profit. Price ($) mr d quantityICE (Dollars per scooter) 3. How short-run profit or losses induce entry or exit Citrus Scooters is a company that manufactures electric scooters in a monopolistically competitive market. The following graph shows the demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC) for Citrus. Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss 500 450 400 360 200 250 200 150 400 50 MC- ATC MR Demand 150 200 250 300 360 400 450 500 QUANTITY (Scooters) + Monopolistically Competitive Outcome Profit or Loss (?) Given the profit-maximizing choice of output and price, Citrus Scooters is earning sellers in the industry relative to the long-run equilibrium amount. Now consider the long run in which scooter manufacturers are free to enter and…(Monopolistic Competition Market) 3D. What is the overall impact of the monopolistic competition market structure on the competition?
- (due at the beginning PART A (INTRODUCTION TO THE KEY CONCEPTS) 1) Monopolistically competitive firms could increase the quantity they produce and potentially lower the average total cost of production. Why don't they do so? 2) Discuss how the monopoly and monopolistic competition market structures differ from perfect competition. Where do you expect the price and quantity to be the lowest/highest? Give some examples of such industries. 3) Indicate whether the following statement is TRUE or FALSE and explain your answer: Monopolistically competitive firms can earn positive economic profit both in the short run and long run. 4) MULTIPLE CHOICE (identify the one best answer below and explain your reasoning for each option): Suppose a monopoly is producing at its profit-maximising (loss-minimizing) quantity, and the price corresponding to this quantity is below average total cost but above average variable cost. The monopoly will a. shut down in the short run but return to production in…(Monopolistic Competition and Perfect Competition Com- pared) Illustrated below are the marginal cost and aver- age total cost curves for a small firm that is in long-run equilibrium. a. Locate the long-run equilibrium price and quantity if the firm is perfectly competitive. b. Label the price and quantity pP, and q,. c. Draw in a demand and marginal revenue curve to illus- trate long-run equilibrium if the firm is monopolistically competitive. Label the price and quantity p, and q2.(Scenario: Monopolistic Competition in the Hotel Industry) Use Scenario: Monopolistic Competition in the Hotel Industry. Given the information in the scenario, in the long run, this firm can expect to have an optimal price of: Scenario: Monopolistic Competition in the Hotel Industry For a monopolistically competitive firm operating in the hotel industry, the demand curve is given by Q = 160 - P, and the firm's cost functions are MC = 20 + 20 and TC = 200 + Q2. O S180 $80 O S75 O $40
- (12) Suppose all firms in a monopolistically competitive industry were merged into one large firm. Would that new firm produce as many different brands? Would it produce only a single brand? Explain.(Figure: The Market for Designer Boots in Monopolistic Competition IV) Use Figure: The Market for Designer Boots in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is in panel Price, cost XXX G; (A) H; (B) (a) O I; (C) O F; (A) ATC Quantity (per period) Price, (b) cost ATC Quantity (per period) Price, (c) cost ATC Quantity (per period)1. Conditions for monopolistic competition The following question asks you to analyze the monopolistically competitive market structure, which has some characteristics of both a monopoly and a competitive market. Complete the following table by selecting whether each of the listed attributes describes a competitive market, a monopolistically competitive market, both, or neither. Check all that apply. Attributes Marginal revenue is equal to price Few sellers Price taker Product differentiation Competitive Market Monopolistically Competitive Market □
- 4. Comparing monopolistic competition and perfect competition Suppose that a firm produces tennis racquets in a monopolistically competitive market. The following graph shows its demand curve (D), marginal revenue curve (MR), marginal cost curve (MC), and long-run average cost curve (LRAC). Assume that all firms in the industry face the same cost structure. Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitive market. Note: Dashed drop lines will automatically extend to both axes. PRICE, COSTS, AND REVENUE (Dollars per racquet) 100 90 80 70 60 50 40 30 20 10 MC 0 0 LRAC MR D 10 20 30 40 50 60 70 80 QUANTITY (Thousands of racquets per month) 90 100 Monopolistic Competition Outcome Perfect Competition Outcome ?6. (Figure: Market Demand Curve I) The graph shows the market demand curve. Price ($) 40- 36 32 28- 24 20 16 12 8 0 MR 1 2 3 4 567 b. Bertrand competition with identical goods c. Cournot duopoly with identical goods MC=AC D 8 9 10 Quantity What are the equilibrium price and market output under the following market structures? a. a two-firm cartel4. Conditions for monopolistic competition The following question asks you to analyze the monopolistically competitive market structure, which has some characteristics of both a monopoly and a competitive market. Complete the following table by selecting whether each of the listed attributes describes a competitive market, a monopolistically competitive market, both, or neither. Check all that apply. Attributes Many sellers Price equals average total cost in the long run Identical products Few sellers Competitive Market Monopolistically Competitive Market 0