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Exam 10: Monopolistic Competition: The Competitive Model in a More Realistic

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Question 1

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After selling 1000 three-ring binders, Tony DiFulvio realises that the marginal revenue from selling the last binder was less than the marginal cost.From this we can conclude that

A) Tony's business earns a short-run economic profit.
B) Tony should shut down his business temporarily.
C) Tony's profit fell after selling his 1000th three-ring binder.
D) Tony's profit would be greater if he sold an additional three-ring binder.

E) B) and D)
F) None of the above

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Question 2

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Figure 10.18 -Refer to Figure 10.18.The diagram demonstrates that

A) in the short run, the monopolistic competitor produces an output Q_b, but in the long run after it adjusts its capacity, it will produce the allocatively efficient output, Q_a.
B) it is not possible for a monopolistic competitor to produce the productively efficient output level, Q_a, because of product differentiation.
C) it is possible for a monopolistic competitor to produce the productively efficient output level, Q_a, if it is willing to lower its price from P_b to P_a.
D) in the long run, the monopolistic competitor produces the minimum-cost output level, Q_a, but in the short run its output of Q_b is not cost minimising.

E) All of the above
F) None of the above

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Question 3

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Figure 10.3 -Refer to Figure 10.3.The marginal revenue of the sixth unit of output is

You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants.Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce.What is likely to happen to your business in the long run?

In monopolistic competition there is/are

Firms in monopolistic competition compete by selling similar, but not identical products.

Figure 10.4 Figure 10.4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 10.4.Should the firm represented in the diagram continue to stay in business despite its losses?

A monopolistically competitive industry that earns economic profits in the short run will face a more elastic demand curve in the long run.

In the long run, if the demand curve of a monopolistically competitive firm is tangent to its average total cost curve, then

A firm cannot control all of the factors that allow it to make economic profits.Which of the following is an example of an uncontrollable factor?

Being the first to sell a particular good can give a firm advantages over other firms that sell similar products.What is the name given to these advantages?

Explain the differences between total revenue, average revenue, and marginal revenue. __________________________________________________________________________________________________________________________________________________________________________________________

Figure 10.4 Figure 10.4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 10.4.If the firm represented in the diagram is currently producing and selling Q_a units, what is the price charged?

What is a key characteristic of a monopolistically competitive market structure?

Figure 10.12 -Refer to Figure 10.12.The monopolistic competitor's profit-maximising price is

Figure 10.3 -Refer to Figure 10.3.The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit.Based on the diagram in the figure,

Which of the following is not a characteristic of monopolistic competition?

Table 10.4 Table 10.4 lists estimated revenues and costs (per week) for plastic vials (100 vials per box) for the Victoria Biological Supplies Company.Victoria sells plastic vials to university and private research laboratories. -Refer to Table 10.4.Based on the data in the table, which of the following statements is true?

A monopolistically competitive firm can convince buyers that its product has value by differentiating its product to suit consumers' preferences.

The table below shows the demand and cost data facing 'Velvet Touches,' a monopolistically competitive producer of velvet throw pillows. Use the data to answer the following questions. a.Complete the Total Revenue (TR), Marginal Revenue (MR)and Marginal Cost (MC)columns above. b.What are the profit-maximising price and quantity for Velvet Touches? c.Is the firm making a profit or a loss? How much is the profit or loss? Show your work. d.Is this firm operating in the long run or in the short run? Explain your answer. e.If the firm's profit or loss is typical of all firms in the market for throw pillows, what is likely to happen in the future? Will there be more firms or will some existing firms leave the industry? Explain your answer. f.What will happen to the typical firm's profit or loss after all entry/exit adjustments? __________________________________________________________________________________________________________________________________________________________________________________________