Exam 9: Firms in Perfectly Competitive Markets

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.

Figure 9-8 Figure 9-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 9-8.What is the profit-maximising output level?

Table 9-5 Table 9-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags. -Refer to Table 9-5.What are the firm's profit-maximising or loss-minimising price and quantity?

Figure 9-12 -Refer to Figure 9-12.What is the monopolistic competitor's profit-maximising price?

Suppose that if a local McDonald's restaurant reduces the price of a Big Mac from $4.00 to $3.25,the number of Big Macs it sells per day will increase from 4 to 5.Explain the output effect and the price effect resulting from this change.Using a graph,illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac.What is the total change in revenue received which results from this price decrease?

If firms in a monopolistically competitive market are earning economic profits,which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium?

Which of the following is an example of implicit collusion?

Consumers in a monopolistically competitive market do not receive any consumer surplus because the price paid for the product exceeds the marginal cost of production.

Oligopolies are difficult to analyse because

Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?

You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants.You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce.What is likely to happen in the restaurant market in your hometown after you open?

Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.

Why are demand and marginal revenue represented by the same curve for a firm in a perfectly competitive market,but by separate curves for a firm in a monopolistically competitive market?

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?

Oligopolies exist and do not attract new rivals because

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

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

Why do most firms in monopolistic competition typically make zero profit in the long run?

Table 9-6 Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide whether to increase its advertising spending to compete for customers. Table 9-6 shows the payoff matrix for this advertising game. -Refer to Table 9-6.Is there a dominant strategy for Godrickporter and,if so,what is it?

Table 9-8 Firm A (Alistair's) and Firm B (Baine's) are the only firms selling luggage in the upscale city 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 9-8 shows the payoff matrix for this advertising game. -Refer to Table 9-8.How are the firms in this advertising game caught in a prisoner's dilemma?