Monopolistic Competition
Suppose Carl's Candies sells 100 boxes of candy for $4 each. The total fixed cost of the 100 boxes is $100 - and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a profit per unit of:
$1.50
Referring to the graph, what is the profit maximizing price?
$140 Reason: To find the profit-maximizing price, find where MR=MC, then read up to the demand curve to find the price.
Suppose Carl's Candies sells 100 boxes of candy for $5 each. The total fixed cost of the 100 boxes is $100 - and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a profit per unit of:
$2.50
Suppose Carl's Candies sells 100 boxes of candy for $5 each. The total fixed cost of the 100 boxes is $100 - and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a total profit of:
$250
Because the products of monopolistically competitive firms are ____ from other companies in their industry, these firms are able to have some control over the ______ of their products.
Blank 1: Different Blank 2: price
________ competitive firms have an incentive to continuously improve and differentiate their products to have more control over their prices and, they hope, to earn more _______ profit.
Blank 1: Monopolistic Blank 2: Economic
When monopolistically competitive firms realize losses in the short run, some firms will ______ the industry, ______ market shares and prices and eliminating losses for the remaining firms.
Blank 1: exit Blank 2: increasing
Through advertising and branding, monopolistically competitive firms increase the demand for their products and make those demands relatively more _____ , allowing them to charge higher _______ and generate _____ economic profits.
Blank 1: inelastic Blank 2: prices Blank 3: greater, increased, more, larger, or higher
One common feature of ______ competitive markets is that firms invest heavily in product development and innovation, which benefits ______ greatly.
Blank 1: monopolistically Blank 2: consumers
Which of the following markets could be considered monopolistically competitive? (Choose all that apply.)
Clothing Hotels Fast food
What do profits and losses in a monopolistically competitive markets lead to in the long run?
Entry into and exit from the market.
In a monopolistically competitive market, which of the following represents a long-run adjustment?
Firms enter the market due to economic profits.
A market structure characterized by a relatively large number of sellers producing a differentiated product - for which they have some control over the price they charge - in a market with relatively easy market entry and exit is known as __________ competition.
Monopolistic
What is true about firms in monopolistic competition in the short-run?
Monopolistically competitive firms can generate an economic profit, a normal profit, or an economic loss.
Which of the following markets would most closely resemble monopolistic competition?
Wine
In monopolistic competition, once you find the profit-maximizing quantity, how do you find the profit-maximizing price?
You read the corresponding price from the demand curve. Reason: In every market structure, the profit-maximizing price is read from the demand curve.
Monopolistic competition is a market characterized by:
a relatively large number of sellers producing a differentiated product - for which they have some control over the price they charge - in a market with relatively easy market entry and exit.
Monopolistically competitive markets:
combine characteristics of competitive markets and pure monopolies.
A clear benefit to monopolistic competition for consumers is product _______
differentiation
Monopolistic competition and a monopoly are:
not the same market structure.