Exam 9: Monopolistic Competition and Oligopoly

Figure 9.4 Figure 9.4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 9.4.Should the firm represented in the diagram continue to stay in business despite its losses?

Table 9.3 Firm A(Alistair's) and Firm B (Baine's) are the only firms selling luggage in the upscale town of Adelaide. 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 9.3 shows the payoff matrix for this advertising game. -Refer to Table 9.3.Does Alistair have a dominant strategy and,if so,what is it?

Table 9.3 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 9.3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 9.3.What is the best course of action for the firm in the short run?

In which of the following cartels is total cartel profit likely to be the highest?

The table below shows the demand and cost data facing 'Velvet Touches',a monopolistically competitive producer of velvet throw pillows. Quantity Price (dollars) Total Revenue (dollars) Marginal Revenue (dollars) Total Cost (dollars) Marginal Cost (dollars) 1 30 32 2 28 43 3 26 53 4 24 64 5 22 76 6 20 90 7 18 106 8 16 126 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? __________________________________________________________________________________________________________________________________________________________________________________________

Write your answer in the space provided or on a separate sheet of paper. Figure 9.10 Figure 9.10 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 9.10 to answer the following questions. a.What is the profit-maximising output level? b.What is the profit-maximising price? c.At the profit-maximising output level,how much profit will be realised? d.Does this graph most likely represent the long run or the short run? Why? __________________________________________________________________________________________________________________________________________________________________________________________

Figure 9.16 -Refer to Figure 9.16 to answer the following questions. a.What is the profit-maximising output level? b.What is the profit-maximising price? c.What is the average total cost at the profit-maximising output level? d.What area represents the firm's profit? e.At which output level are economies of scale exhausted? f.Does this graph most likely represent the long run or the short run? Why? __________________________________________________________________________________________________________________________________________________________________________________________

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm ______.

A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.

How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

When a monopolistically competitive firm breaks even in the long run,this is equivalent to earning a zero accounting profit.

The marginal revenue of a monopolistically competitive firm _______.

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

What is the difference between zero accounting profit and zero economic profit? __________________________________________________________________________________________________________________________________________________________________________________________

Which of the following is true for a firm with a downward-sloping demand curve for its product?

The dominant strategy in the prisoner's dilemma is:

A monopolistically competitive industry that earns economic profits in the short run will be able to expand its market share even if the market size remains constant.

Every firm that has the ability to affect the price of the good or service it sells will _______.

Table 9.2 Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 9.2 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 9.2.Which of the following statements is true?

Figure 9.12 -Refer to Figure 9.12.The amount of excess capacity is _______.