7) Although the long run equilibrium of a monopolistically competitive markets involves zero economic profit like perfect competition, the outcome is deemed to be inefficient. Why is that the case? Are there desirable characteristics of monopolistic competition that potentially balance some of the inefficiencies?

7) Although the long run equilibrium of a monopolistically competitive markets involves zero economic profit like perfect competition, the outcome is deemed to be inefficient. Why is that the case? Are there desirable characteristics of monopolistic competition that potentially balance some of the inefficiencies?

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 1QFR

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#3) Draw a diagram of the long run equilibrium in a monopolistically competitive market. How is price related to average total cost? How is price related to marginal cost?
a) Can the threat of a price war deter entry by potential competitors? What actions might a firm take to make this threat credible? b)Why is the firm’s demand curve flatter than the total market demand curve in monopolistic competition? Suppose a monopolistically competitive firm is making a profit in the short run. What will happen to its demand curve in the long run?
Monopolistically competitive firms can earn above-normal economic profits in the short run. (a) In a few sentences, explain what will happen in the long run that will prevent monopolistically competitive firms from continuing to earn above-normal economic profits. (b) What is different about monopolists and oligopolists that allows these firms to earn above-normal economic profits in the long run, when perfectly competitive and monopolistically competitive firms cannot? Explain your answer in a few sentences.
Which of the following is shared by both monopolistically competitive markets and prefectly competitive markets?
2. b) What does the demand curve faced by a monopolistic competitive firm look like? Explain why it is sloped this way, and what this implies about the relationship between price and marginal revenue under monopolistic competition
Suppose,initially there is a positive profit obtained by a firm in monopolistic competition.Explain how the adjustment to the long-run equilibrium will take place in the monopolistic competitive market.why will there be excess capacity in the long-run equilibrium in this scenario?Provide adequate graph to supplement your answer.
From the following graph, show the equilibriums under each scenario. Market is in equilibrium at A under competitive market. (a) Show the equilibrium under monopoly. Call this point B (b) When the demand increased in the area due to immigration, show the new competitive equilibrium, call this point C. (c) Show the new monopolistic equilibrium with increased demand and call this point D.
WataDine is one of a city’s many restaurants that serve breakfast, lunch, and dinner in a monopolistically competitive market. Assume that WataDine, as a restaurant in the city, is currently producing the profit-maximizing output level, and earns positive short-run economic profit. (a) How is monopolistic competition similar to each of the following market structures? (i) Perfect competition (ii) Monopoly (b) WataDine is currently earning short-run economic profits. Draw a correctly labeled graph for WataDine in short-run equilibrium and show each of the following. (i) The profit-maximizing quantity, labeled Qm (ii) The profit-maximizing price, labeled Pm (c) Given that WataDine is currently earning short-run economic profits, what will happen to each of the following in the long run? (i) WataDine's economic profit. Explain. (ii) WataDine's demand curve for its restaurant meals. (d) Assume WataDine is in long-run equilibrium. (i) Is WataDine taking advantage of its economies of scale?…
Although the long run equilibrium of a monopolistically competitive markets involves zero economic profit likeperfect competition, the outcome is deemed to be inefficient. Why is that the case? Are there desirablecharacteristics of monopolistic competition that potentially balance some of the inefficiencies?
WataDine is one of a city’s many restaurants that serve lunch and dinner in a monopolistically competitive market. Assume WataDine, as a typical restaurant in the city, is currently producing the profit-maximizing output level, and earns positive short-run economic profit. (a) How is monopolistic competition similar to each of the following market structures? (i) Perfect competition (ii) Monopoly (b) WataDine is currently earning short-run economic profits. Draw a correctly labeled graph for WataDine in short-run equilibrium and show each of the following. (i) The profit-maximizing quantity, labeled QM (ii) The profit-maximizing price, labeled PM (c) Given that WataDine is currently earning short-run economic profits, what will happen to each of the following in the long run? (i) WataDine's economic profit. Explain. (ii) WataDine's demand curve for its restaurant meals. (d) Assume WataDine is in long-run equilibrium. (i) Is WataDine taking advantage of its economies of scale? Explain.…
1. Is a monopolistically competitive firm productively efficient? Is it allocatively efficient? Why or why not? 2. What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits? Is there a way for oligopolists to attempt to maximize profits? What are the risks of such attempts (and utimately, generally cause such attempts to fail)?
3. Discuss the long debate of economists whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive