Exam 11: Monopolistic Competition and Oligopoly

For a profit-maximizing monopolistically competitive firm,for the last unit sold,the marginal cost of production is less than the marginal benefit received by a customer from the purchase of that unit.

If economies of scale are significant,the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

A prisoner's dilemma leads to a noncooperative equilibrium.

If a firm has excess capacity,it means

Central Grocery in New Orleans is famous for its muffaletta,a large round sandwich filled with deli meats and topped with a tangy olive salad.Suppose the following table represents cost and revenue data for Central Grocery.Fill in the columns for TR,MR,MC,ATC,and profit.If Central Grocery wants to maximize profits,what price should it charge for a muffaletta,what quantity should it sell,and what will be the amount of its total profit? Muffaletta 5 Sald per Day Price (P) Tatal Revenue (TR) Marginal Revenue (MR) Total Cost ( TC) Marginal Cast (MC) Average Total Cast (ARC) Prafit 0 \ 15 \ 12 1 14 18 2 13 20 3 12 21 4 11 23 5 10 26 6 9 30 7 8 35 8 7 42 9 6 52 10 5 78

Table 11-9 Alistair's (A) Choices Baine's (B) Choices Increase advertising budget Leave advertising budget as is Increase advertising budget A: \ 30,000 profit B: \ 30,000 profit A: \ 10,000 profit B: \ 50,000 profit Leave advertising budget as is A: \ 50,000 profit B: \ 10,000 profit A: \ 40,000 profit B: \ 40,000 profit Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 11-9 shows the payoff matrix for this advertising game. -Refer to Table 11-9.What is the Nash equilibrium in this game?

Table 11-9 Alistair's (A) Choices Baine's (B) Choices Increase advertising budget Leave advertising budget as is Increase advertising budget A: \ 30,000 profit B: \ 30,000 profit A: \ 10,000 profit B: \ 50,000 profit Leave advertising budget as is A: \ 50,000 profit B: \ 10,000 profit A: \ 40,000 profit B: \ 40,000 profit Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 11-9 shows the payoff matrix for this advertising game. -Refer to Table 11-9.How are the firms in this advertising game caught in a prisoner's dilemma?

Is a monopolistically competitive firm productively efficient?

Unlike a perfectly competitive firm,for a monopolistically competitive firm

Who won a Nobel Prize in economics for his work in the development of game theory?

Figure 11-12 Figure 11-12 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-12.If the diagram represents a typical firm in the designer watch market,what is likely to happen in the long run?

A monopolistically competitive firm faces a downward-sloping demand curve because

On January 2,1971,all cigarette advertising was banned on U.S.television and radio stations.Did this ban likely increase or decrease the profits of cigarette companies in 1971? Briefly explain.

In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.

Which of the following is not an example of a government-imposed entry barrier?

Explain the similarities and differences between the long-run equilibrium for a perfectly competitive firm and a monopolistically competitive firm.Illustrate your answer with a graph demonstrating the long run equilibrium for the two types of firms.

Table 11-4 Quantity Total Marginal Total Marginal Sold Price Revenue Revenue Cost Cost Profit 0 \ 10 \ 0 \ldots \ 2 \ldots -\ 2 1 9 9 8 2 8 16 13 3 7 21 17 4 6 24 20 5 5 25 22 6 4 24 26 Table 11-4 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 11-4.Based on the data in the table,which of the following statements is true?

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because

The De Beers Company blocked competition