Chapter 14: Monopolistic Competition Study Modules

According to the graph, what will be the firm's total revenue if it is maximizing profits?

$13,500

According to the graph, what price should the firm charge to maximize profits?

$15

According to the graph, if the firm is maximizing profits what is the dollar value of the profit?

$5.00

According to the graph, a decrease in price from $3.50 to $3.00 per cup results in a gain and a loss of revenue. Which area represents the loss of revenue?

Area A

According to the graph, a decrease in price from $3.50 to $3.00 per cup results in a gain and a loss of revenue. Which area represents the gain of revenue?

Area B

Which of the following types of firms use the marginal revenue equals marginal cost approach to maximize profits?

Both perfectly competitive and monopolistically competitive

What trade-offs do consumers face when buying a product from a monopolistically competitive firm?

Consumers pay a price greater than marginal cost but also have a wider array of choices.

Which of the following best describes the additional revenue associated with selling an additional unit of output?

Marginal revenue

For what type of market structure is the demand curve the same as marginal revenue?

Perfect competition

Which of the following best describes how the product differentiation of monopolistically competitive firms may benefit consumers?

Product differentiation can locate firms more conveniently to consumers and offer versions of a product or service that better fits their needs.

What is the definition of markup?

The ability of a firm to charge a price greater than marginal cost.

The monopolistically competitive firm sells a __________ product and faces a __________ demand curve.

differentiated, downward-sloping

According to the graph, the firm in question is a monopolistically competitive firm:

in long-run equilibrium as indicated by the equality of price and average cost

According to the graph, what will happen if Starbucks increases the price of caffe lattes?

it will lose some, but not all, of its customers

A monopolistically competitive firm in a long-run equilibrium produces where:

its demand curve is tangent to its average total cost curve

A monopolistically competitive firm is characterized by the existence of many firms in the market, differentiated products and:

low barriers to entry

A monopolistically competitive firm produces where:

marginal revenue equals marginal cost

According to the graph, the loss in revenue from decreasing price is greater than the gain in revenue from increasing price whenever marginal revenue is:

negative

If a monopolistically competitive firm's demand curve is above its average total cost curve, then this firm is making:

positive economic profit

A firm may opt to pay millions of dollars for celebrity endorsements in order to:

signal to consumers that the advertised product is appealing and likely to be popular

Monopolistically competitive firms have some control over price because:

the products they produce are differentiated