ECON 213 Problem Set 12 Monopolistic Competition Assignment solutions complete answers

ECON 213 Problem Set 12 Monopolistic Competition Assignment solutions complete answers 

 

01Question

At your high school reunion, a friend describes his plan to take a break from his florist shop and sail around the world. He says that if he continues to make the same economic profit for the next 5 years, he will be able to afford the trip.

 

Do you think your friend will be able to achieve his dream in 5 years?



What is likely to happen to your friend's profits in the long run?

 

02Question
Determine whether the markets, businesses, or products listed below belong in a competitive market, a monopoly, or a monopolistically competitive market.

 

03Question
The figure below depicts a monopolistically competitive firm operating in the short run. Label the diagram with the items listed to the right of the figure. You will have to decide whether the firm is making a profit or a loss.

 

(a) The firm depicted in Part 1 above earns an economic

 

(b) As a result, firms will

 

(c) This trend will continue until profits in the long run are

 

04Question
Now that you have studied monopolistic competition, let's see how well you can distinguish a firm in a monopolistically competitive market from a firm in a perfectly competitive market. Given the description of the firm below, decide whether it applies to monopolistic competition, perfect competition, or both. You may have to adjust the scroll bar to see the complete list.

 

05Question
Because monopolistically competitive firms produce differentiated products, advertising is widespread as firms try to attract new customers or to capture customers from rival firms. However, advertising can have both benefits and costs. Let’s see how.

 

(a) A successful advertising campaign will cause the firm’s demand to

 

(b) The firm's demand curve becomes more

 

(c) In the short run, a successful advertising campaign will enable the firm to charge a price

 

Although there are potential benefits to advertising, it does not come without costs. Suppose the figure below shows the average cost curves of American Eagle before and after advertising.

 

(a) If American Eagle advertises, it wants to move from point

 

(b) But American Eagle competes with many other rivals, who will also advertise. Each firm’s advertising campaign cancels out the others. The net effect is for American Eagle’s average cost to move from 

 

06Question
 

Katherine owns and operates one of the many independent coffee shops in Boston, which has everything from espresso to pour overs, to lattes and cold brew, as well as a wide selection of baked goods. However, Katherine uses a unique selection of single origin, organically grown, hand-roasted coffee beans. Katherine can run her coffee shop as a monopoly, as she is the only one in Boston with her unique selection of beans. The following figure depicts the demand curve that she faces and the costs that she incurs.

Using the area tool in the graph below, draw the area that represents the profit or loss. Your answer should be a rectangle drawn with four corners.

 

Of the following statements, which one best describes what we can expect to happen to this market in the long run?

 

07Question
 

Examine the figure above, which represents a monopolistically competitive firm, and answer the questions below.

 

What quantity represents the efficient scale of production?

 

What quantity represents the profit-maximizing quantity?

 

What quantity represents the amount of excess capacity?

 

08Question
Sort the following outcomes of product differentiation by whether they are costs or benefits of monopolistic competiton.

 

09Question
The market for smartphones is characterized as a monopolistically competitive market, as companies differentiate their product from that of competitors through extensive marketing campaigns. One firm in this market is depicted below, and it is in long-run equilibrium.

Most smartphone manufacturers are switching to the use of OLED screens in their smartphones because of the superior brightness and weight savings compared to alternative screen technology. This has resulted in an acute shortage of OLED screens, and it has driven up the cost of OLED screens in the short run.

In the figure below, depict the impact of the increased cost of OLED screens by shifting the appropriate curve, or curves.