Exam 11: Monopolistic Competition and Oligopoly

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.

For allocative efficiency to hold

Assume that price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118,then to maximize profits the firm should increase its output.

Table 11-9 Alpha and Beta are the only firms selling gyros in the upscale town of Delphi. Each firm must decide on whether to offer a discount to students to compete for customers. If one firm offers a discount but the other does not, then the firm that offers the discount will increase its profit. Table 11-9 shows the payoff matrix for this game. -Refer to Table 11-9.If Alpha assumes that Beta would offer a student discount,what should it do?

Table 11-8 Suppose OPEC has only two producers, Saudi Arabia and Ecuador. Saudi Arabia has far more oil reserves and is the lower-cost producer compared to Ecuador. The payoff matrix in Table 11-8 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. -Refer to Table 11-8.Is there a dominant strategy for Ecuador and,if so,what is it?

Excess capacity is a characteristic of monopolistically competitive firms.What does excess capacity mean?

In the long run,what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?

Table 11-2 Quantity (cases) Price (dollars) Total Revenue (dollars) Total Cost (dollars) 1 \ 75 \ 75 \ 60 2 70 140 85 3 65 195 105 4 60 240 115 5 55 275 130 6 50 300 155 7 45 315 190 8 40 320 230 9 35 315 280 Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11-2 shows the firm's demand and cost schedules. -Refer to Table 11-2.How much additional profit will be made if the firm chooses to produce and sell 5 cases instead of 4 cases?

A characteristic found only in oligopolies is

Both monopolistically competitive firms and perfectly competitive firms maximize profits

Table 11-9 Alpha and Beta are the only firms selling gyros in the upscale town of Delphi. Each firm must decide on whether to offer a discount to students to compete for customers. If one firm offers a discount but the other does not, then the firm that offers the discount will increase its profit. Table 11-9 shows the payoff matrix for this game. -Refer to Table 11-9.Does Beta have a dominant strategy and if so,what is it?

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. Muffalettas Sold per Day Price ( ) Total Revenue (TR) Marginal Revenue ( ) Total Cost ( ) Marginal Cost ( ) Average Total Cost ( ) Profit 0 \ 15 \ 0 \@cdots- \ 12 \@cdots- -\@cdots -\ 12 1 14 14 \ 14 18 \ 6 \ 18.00 -4 2 13 26 12 20 2 10.00 6 3 12 36 10 21 1 7.00 15 4 11 44 8 23 2 5.75 21 5 10 50 6 26 3 5.20 24 6 9 54 4 30 4 5.00 24 7 8 56 2 35 5 5.00 21 8 7 56 0 42 7 5.25 14 9 6 54 -2 52 10 5.70 2 10 5 50 -4 78 26 7.80 -28 Illustrate this data by graphing the demand,MR,MC,and ATC curves.Identify the profit-maximizing price and quantity,and show the area representing the total profit received by Central Grocery.

A prisoner's dilemma leads to a noncooperative equilibrium.

Table 11-3 Quantity Price (dollars) Total Revenue (dollars) Total Variable Cost (dollars) Total Cost (dollars) 0 \ 21 \ 0 \ 0 \ 50 1 20 20 16 66 2 19 38 31 81 3 18 54 45 95 4 17 68 59 109 5 16 80 75 125 6 15 90 93 143 7 14 98 112 162 8 13 104 140 190 9 12 108 180 230 10 11 110 230 280 Table 11-3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 11-3.If this firm continues to produce,what is likely to happen to the product's price in the long run?

Arturo runs a Taco Bell franchise.He is selling 250 Gordita Supremes per week at a price of $2.75.If he lowers the price to $2.70,he will sell 251 Gordita Supremes.What is the marginal revenue of the 251st Gordita Supreme? If selling the extra Gordita Supreme adds $0.20 to Arturo's costs,what will be the effect on his profit from selling 251 Gordita Supremes instead of 250?

Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive.Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being?

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?

Only one of the following statements is correct.The statements compare perfectly competitive (PC)markets and monopolistically competitive (MC)markets.Which statement is correct?

One of the assumptions of monopolistic competition is that firms produce differentiated products.What does this assumption imply about the demand curve facing a representative firm?

The long-run equilibrium in a monopolistically competitive market is similar to the long-run equilibrium in a perfectly competitive market in that in both markets,firms