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.