ECON 120W Lecture Notes - Lecture 13: Monopolistic Competition, Perfect Competition, Imperfect Competition

37 views2 pages

raspberryrabbit779

5 Nov 2017

School

University of Waterloo

Department

Economics

Course

ECON 120W

Professor

Dr.Jackson

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Any action the firm takes to maintain product differentiation over time is known as brand management. The monopolistically competitive firm sells a differentiated product and faces a downward- sloping demand curve. Neither allocative nor productive efficiency is achieved by a monopolistically competitive firm in the long run: for allocative efficiency to hold, a firm must charge a price that is equal to marginal cost. This does not occur in monopolistic competition: for productive efficiency to hold, the goods must be produced at the lowest possible cost. The process of differentiation keeps that from occurring in a monopolistically competitive market. The loss in revenue from decreasing price is greater than the gain in revenue from increasing price whenever marginal revenue is negative. A monopolistically competitive firm in a long-run equilibrium produces where its demand curve is tangent to its atc curve. Both perfectly competitive and monopolistically competitive firms use the mr equals mc approach to maximize profit.

Related Questions

The statements below are about monopolistic competition. Indicate whether each statement is true or false by moving the true or false labels to the appropriate boxes.

1. A monopolistically competitive firm may be able to distinguish itself from other firms by adjusting the physical attributes of its product, by offering a distinctive level of service, or by selecting a convenient location. 2. Product differentiation enables a monopolistically competitive firm to have some control over the price of its product. 3. In the long run each monopolistically competitive firm produces a level of output that results in allocative efficiency. 4. In the long run each monopolistically competitive firm produces a level of output that results in productive efficiency. 5. To maintain a competitive edge and earn economic profits, a monopolistically competitive firm has an incentive to improve its product. 6. Compared with purely competitive markets, under monoplistic competition consumers with a diversity of tastes can benefit from the opportunity to choose from a greater range of products and services. 7. In order to maximize its profits, each monopolistically competitive firm must determine the price of its product, how to differentiate its product, and how much it will spend on advertising.

1. Which of the following is a firm in a perfectly competitive market?

1) a local corn farmer

2) the Tennessee Valley Authority, a large electricity producer that serves areas of five states

3) pizza delivery

4) a grocery store

5) Kate Spade, fashion designer

2. Compare a perfectly competitive market with a monopolistically competitive market.

The markup the firm charges in a monopolistically competitive market is ___________ the markup charged by a firm in a perfectly competitive market.

The firm's excess capacity in a monopolistically competitive market is ___________ the firm's excess capacity in a firm in a perfectly competitive market.

The efficiency of a monopolistically competitive market is ___________ the efficiency of a perfectly competitive market.

1)greater than; less than; greater than

2)greater than; greater than; less than

3)less than; less than; greater than

4)greater than; less than; equal to

3. In the long run, how is price related to marginal cost in both perfect competition and in monopolistic competition?

1) The long-run price is driven to marginal cost in both competitive markets and markets that are monopolistically competitive.

2 )Both markets can charge more than the marginal cost in the long run because products are differentiated in both markets.

3) Products are identical in perfectly competitive markets, so a firm must charge less than the marginal cost in order to differentiate itself. This is not true in monopolistically competitive markets where firms can charge more than marginal cost.

4) Because monopolistically competitive firms have market power, they set a price higher than marginal cost, while competitive firms cannot.

4. Titleist has an advertising slogan is "The #1 ball in golf" Consumers can also buy generic golf balls. The manufacturers of generic golf balls do not engage in any advertising. Assume that the average total cost of producing Titleist and generic golf balls is the same.

Which producer has a stronger incentive to maintain quality control in the production of golf balls?

1) Titleist

2) a manufacturer of generic golf balls

ultramarinebeaver27

32. Which of the following is not a difference between monopolies and perfectly competitive markets?

A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.

C. Monopolies can earn profits in the long run while perfectly competitive firms break even.

D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

40. Which of the following statements is not correct?

A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.

C. Only competitive firms produce the welfare-maximizing level of output.

D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.

43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

A. the profits of the firm are negative.

B. firms are likely to leave this market in the long run.

C. the firm is currently maximizing its profit.

D. All of the above are correct.

ECON 120W Lecture Notes - Lecture 13: Monopolistic Competition, Perfect Competition, Imperfect Competition

Document Summary

Get access

Related Documents

ECON 120W Lecture Notes - Lecture 17: Nash Equilibrium, Monopoly Profit, Oligopoly

ECON 120W Lecture Notes - Lecture 14: Tacit Collusion, Predatory Pricing, Advertising Campaign

ECON 120W Lecture Notes - Lecture 11: Average Variable Cost, Diminishing Returns, Marginal Revenue

Related Questions