Download Homework Quiz 9

Quiz 9
Monopolistic Competition, ch.12
1.
Explain what kind of market is considered monopolistically competitive.
2.
Give 3 examples of monopolistically competitive industries.
Microeconomics
3. A monopolistically competitive producer of Gizmos is currently selling 9 units per week at a price of $20 per unit. It
could sell one additional Gizmo (total of 10) if it reduced its price to $19 per unit. What would be the marginal revenue
generated by this additional unit of output? Show work.
4. La Bella Pizza operates in a monopolistically competitive market on Easter Island. The following figure shows La Bella
Pizza's demand curve, marginal revenue curve, marginal cost curve and average cost curve. What are the profit maximizing
price and quantity?
P
20
MC
C
16
D
13
12
E
AC
8
MR
D
9
18
Q
5. The cost of producing LCD flat-screen televisions is dropping rapidly due to improvements in technology. Motorola,
according to NYTimes, will be entering this market, drawn by the current high rates of profit and projected 200 percent per
year increase in sales. Motorola:
a. May lose money in the short run, but will earn economic profits in the long run if it stays in business.
b. Will see the price of its product increase as more people are induced to purchase LCD TVs.
c. May make a profit in the short run, but not in the long run.
d. Will see substantial profits as long as it stays in the industry.
e. Will be able to sell above average total cost.
6. Watch any 2 TV commercials. For each commercial describe
a. products advertised
b. how is the firm using the ad to differentiate its product from competitors’ products - what features does it emphasize?
c. what market structure is the producing firm operating in (perfect competition, monopolistic competition, monopoly,
oligopoly) and why you think so.
7. Suppose a monopolistically competitive producer of plastic penguin toys faces the demand and cost schedules given in
the table below.
a. Compute total revenue and marginal revenue for this firm.
Price
24
20
16
12
8
Quantity
0
1
2
3
4
ATC
16
12
12
14
MC
16
8
12
20
TR
MR
b. What is the profit-maximizing price and quantity for this firm? Use MR=MC rule. What profit or loss does the firm earn
at this price and quantity?
c. Graph demand curve, MR, MC, ATC. Mark area that corresponds to profit or loss.