Chap 9 micro

The following graph shows the firm-specific demand, Marginal Revenue, and Marginal Cost for Sarah's Sandwich Shed, which operates in a Monopolistically Competitive market. Sarah's profit-maximizing amount of output is sandwiches/day.

150

Assume that in short-run equilibrium, a particular monopolistically competitive firm charges $10 for each unit of its output and sells 54 units of output per day. The average total cost (ATC) for those 54 units is $10. Instruction: Round your answers below to the nearest whole number. How much revenue will it take in each day? $ What will be its economic profit or loss? Next, suppose that entry or exit occurs in this monopolistically competitive industry and establishes a long-run equilibrium. If the firm's daily output remains at 54 units, what price will it be able to charge? $ What will be its economic profit or loss?

540 neither 0 10 neither 0

Oligopolistic firms do which of the following when they change their pricing strategies?

Affect profits and influence the profits of rival firms.

According to the payoff matrix, if Uptown and RareAir both follow a strategy to dominate market share by using a low price strategy, then RareAir's payoff will be

$8.

Which of the following is not a characteristic of oligopoly?

Firms have no control over their price.

What does a demand curve look like for an oligopolistic firm?

It could be downward sloping or kinked

competition is a market characterized by having many sellers, differentiated products, and with ease of entry and exit from an industry.

Monopolistic

Limited price control due to a large number of firms in the industry is a characteristic of which market structure?

Monopolistic competition

Allocative efficiency is achieved in the short run when the equality of which of the following occurs?

P = MC

Which of the following correctly describes the difference between products under pure competition versus products under monopolistic competition?

Standardized products are sold in pure competition but differentiated products are sold in monopolistic competition.

In the long run, if a monopolistically competitive firm is earning normal profits (breaking even), then it should

not exit the industry because both explicit and implicit costs are covered.

Demand and cost differences, the number of firms in the industry, and the potential for cheating all represent Blank 1 of 1 to collusion.

obstacles

is a market dominated by a few large producers of a homogeneous or differentiated product.

oligopoly

Productive efficiency in monopolistically competitive markets does not occur in the long run because firms set the price

on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective.

In the long run, a monopolistic competitor does not achieve allocative efficiency because _____.

price exceeds the marginal cost

A type of implicit understanding used by oligopolists to coordinate prices without engaging in outright collusion is known as

price leadership

By changing their advertising and Blank 1 of 1 strategies, firms competing in an oligopoly can affect profits and influence the profits of rivals.

pricing

Oligopolists often compete through product development and advertising instead of price because

product development and advertising are relatively difficult to copy.

There is some, but not complete, control over product price for firms operating in a monopolistically competitive market because:

there are a large number of firms

in oligopolistic industries means that each firm's profits partly depend on their rival's actions.

Blank 1: Mutual Blank 2: Interdependence

Which of the following is a characteristic of monopolistic competition?

Differentiated products

True or false: Firms in an oligopoly always produce a homogeneous product.

False

Oligopolies are not desirable because they

achieve neither productive efficiency nor allocative efficiency.

The equality of price and marginal cost yields Blank 1 of 1(allocative/productive) efficiency.

allocative

Which of the following are obstacles to collusion in an oligopolistic industry?

cheating recession antitrust laws demand and cost differences

Oligopolists can often benefit from Blank 1 of 1, which means cooperation with rivals.

collusion

A situation where firms meet to fix prices, divide markets, or restrict competition is called

collusion.

The shape of the demand curve for an oligopolistic firm

depends on the actions of rivals to price changes

Oligopolies typically are not desirable because they

do not achieve allocative efficiency because their price exceeds marginal cost.

A monopolistic competitive firm's demand curve is _____.

downward-sloping like the demand curve for a monopoly, not horizontal like those in purely competitive markets

Firms in an oligopoly may produce

either a homogeneous product or a differentiated product.

In a Perfectly Competitive market, the products are identical from firm to firm, leading to a horizontal demand curve for each individual firm's products, while in a Monopolistically Competitive market, the products are different from firm to firm, leading to a downward-sloping demand curve for each individual firm's products.

identical horizontal different downward-sloping

Price leadership in an oligopoly entails a type of

implicit collusion.

As a means of conveying information, advertising is a relatively

low-cost way to get information to consumers.

In the game illustrated in the figure to the right, if both follow a no-collusion strategy, the equilibrium outcome will be such that RareAir uses a ______ price and Uptown uses a ______ price strategy.

low; low

Advertising increases efficiency by

lowering search costs for consumers. facilitating the introduction of new products.

Two types of market models that closely approximate many markets in the real world are

monopolistic competition and oligopoly.

A good way to describe Blank 1 of 2(monopolistic/oligopolistic) competition is that it mixes a small amount of monopoly power with a large amount of competition, while Blank 2 of 2 (monopoly/oligopoly) blends a large amount of monopoly power, a small amount of competition through entry, and considerable rivalry among firms.

monopolistic; oligopoly

A monopolistic competitor's demand curve is

more elastic than that of a pure monopoly but less elastic than that of a firm in pure competition.

A situation in which each firm's profit depends not entirely on its own price and sales strategies but also on those of other firms is known as ______.

mutual interdependence

Suppose that an monopolistically competitive restaurant is currently serving 280 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal. What is the size of this firm's profit or loss? Will there be entry or exit? Will this restaurant's demand curve shift left or right? In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. What is the size of the firm's profit? $

profit - 560 entry left 0

a.) Gulp and Chug are the two large producers in the oligopolistic market for left-handed coffee mugs. If they can make an agreement, they will cooperate in: b.) However, if Gulp sticks to the agreement, Chug has an incentive to:

reducing output, which raises the product price. boost its own production to take advantage of high prices.

Oligopolistic behavior implies that oligopolists prefer competition

through product development. through advertising.

Firms in monopolistic competition produce goods with:

varying degrees of customer service slightly varying physical characteristics

In long-run equilibrium, monopolistically competitive firms _____.

will just break even and make no economic profit