Exam 14: Monopolistic Competition

Calvin is a custom picture framer. His total fixed cost is $110 a day, and his average variable cost is $1 a frame. He is maximizing his profit by selling 22 picture frames a day for $6 a frame. Few people know about Calvin's Framery. Calvin thinks that if he spends $10 a day on advertising, he can increase his market and sell 44 picture frames a day for $6 a frame. If Calvin's belief about the effect of advertising is correct, he

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3. Assume this firm faces demand curve D₂. To maximize economic profit, this firm in monopolistic competition will charge a price of ________ and produce an output of ________ units.

A firm has excess capacity if

In monopolistic competition

Use the figure below to answer the following questions. Figure 14.2.4 -Refer to Figure 14.2.4. The figure represents a monopolistically competitive firm in short-run equilibrium. What price does the firm charge?

Use the figure below to answer the following questions. Figure 14.2.3 -Refer to Figure 14.2.3. Assume this firm faces demand curve D₁. At the profit-maximizing output level, the firm

The key feature of monopolistic competition that distinguishes it from perfect competition is

Use the figure below to answer the following questions. Figure 14.2.4 -Refer to Figure 14.2.4. The figure represents a monopolistically competitive firm in short-run equilibrium. What is the firm's level of output?

A monopolistically competitive firm is able to influence the price of what it sells because of

Use the figure below to answer the following questions. Figure 14.2.1 -Refer to Figure 14.2.1. If this firm is in monopolistic competition, then it will charge a price

In monopolistic competition, advertising costs

Which one of the following characteristics is not shared by single-price monopoly and monopolistic competition?

Which of the following are true? The similarities between perfect competition and monopolistic competition include: (1) no barriers to entry. (2) profit-maximizing output occurs where MC = MR. (3) long-run economic profit equals zero.

Use the information below to answer the following questions. Fact 14.3.2 Suppose that Tommy Hilfiger's marginal cost of a jacket is $100 (a constant marginal cost)and at one of the firm's shops, total fixed cost is $2,000 a day. The profit-maximizing number of jackets sold in this shop is 20 a day. Then the shops nearby start to advertise their jackets. The Tommy Hilfiger shop now spends $2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 50 a day. -Refer to Fact.14.3.2. If advertising decreases demand and makes demand more elastic, the price of a Tommy Hilfiger jacket ________. If advertising increases demand and makes demand less elastic, the price of a Tommy Hilfiger jacket ________. If price falls, markup ________. If price rises, markup ________.

In monopolistic competition, firms compete on the basis of

Firms in monopolistic competition make zero economic profit in the long run because

In the long run, a monopolistically competitive firm produces the output at which price equals

Which of the following goods is best described as being sold in a monopolistically competitive market?

Use the figure below to answer the following questions. Figure 14.2.6 -Refer to Figure 14.2.6, which shows the demand curve, marginal revenue curve and cost curves faced by Gap. Gap's economic ________ is ________ a day.

Use the figure below to answer the following questions. Figure 14.2.2 -Refer to Figure 14.2.2. To maximize economic profit, this firm in monopolistic competition produces an output