Mentor Okay, I think we can now determine what kind of market you operate in. Kim There are four main types of markets: perfectly competitive, monopolistically competitive, oligopolies, and monopolies. Kim The corn market- an agricultural market - is which kind of market? Kim a monopolistically competitive market an oligopoly a perfectly competitive market a monopoly
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- If the firms in a monopolistically competitive market are earning economic profits or losses in the short run, would you expect them to continue doing so in the long run? Why?. When Chinese automakers began exporting cars, rather thanfocusing on developed nations in the West, they shippedautos to emerging markets in countries such as Algeria, Russia,Chile, and South Africa. In these markets, even used vehiclesfrom multinational manufacturers are relatively scarce—andrelatively expensive. The Chinese automakers, who prioritizelow cost rather than design or even safety, applied a penetration-pricing strategy. A woman in Santiago, Chile, who boughta new Chery S21 explained, “The price factor is fairly decisive.I paid $5,500 new and full. Toyota with similar features costsaround $12,000.” Why do you think Chinese automakerschose that pricing strategy? Do you think it was successful?As Chinese regulators pressure these manufacturers to maketheir cars safer, do you think they will be able to keep theirprices low compared with those of the international automakers? Why or why not?26ls uccess Tips ■ccess Tips NOUT Actumpto Koup the Highest/3 3. Is monopolistic competition efficient? Suppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. PRICE (Dollars par bat) 80 70 60 20 MO о о 10 20 40 ATC 60 QUANTITY (Thousands of bas) Demand Man Camp Outcome Min Unit Cost Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that optimal quantity. Furthermore, the quantity the firm produces in long-run equilibrium is average total cost. at the the quantity at which…
- The American market for shoes is a good example of monopolistic competition. In a situation where Adidas is earning a large economic profit in the short-run, Nikemay try to increase their advertising to capture some of that business, If Nike is successful in their campaign, what would happen to the demand curve for Adidas and the price at which they can sell?O a. The demand curve shifts up and to the right, and the price rises.O b. The demand curve shifts up and to the right, and the price falls.O c. The demand curve shifts down and to the left, and the price walls.O d. The demand curve shifts down and to the left, and the price rises.Oe. Nike cannot affect the demand for Adidas since this is a monopolistically competitive market.Suppose that the market for e-readers is an oligopoly controlled by Amazon.com , Barnes and Noble,Sony, and Apple. Barnes and Noble is consideringincreasing its output. How would this affect themarket price? How would it affect the profits ofeach company?at the Because this market is a monopolistically competitive market, you can tell that it is in long-run equihbrium by the fact that the efficient scale. optimal quantity for each firm. Furthermore, the quantity the firm produces n long-run equilibrium is True or False: This indicates that there is a markup on marginal cost in the market for jackets. OTrue False
- Which of the following is a difference between a monopolistically compettive market and a monopoly in the long run? OA. Firms in a monopolistically competitive market eam zero economic profits in the long run, while a monopolist incurs losses in the long run. B. Firms in a monopolistically competitive market charge a price higher than marginal cast in the long run, while a monopolist charges a price equal to marginal cast in the long run OC. Firms in a monopolistically competitive market car zero economic profits in the long run, while a monopolist usually carns positive economic profits in the long run. OD. Firms in a monopolistically competitive market charge a price lower than merginal cost in the long run, while a monopolist charges a price equal to merginel cost in the long run.9 of 15 Warwick Inc. produces in a monopolistically compettive market. Which of the following corectly explains howa fmin this market struchure would transition trom the short run to the long run? O The supemomal profits eamed by Warwick Inc in the short run will attract new firma into the market. This wil shit the market supply curve to the right, which will reduce the market price and the price faced by Warwick ine. The price wil keep falling until Average Revenue equals Average Cost and only normal profits are made. O The supermormal profits eamed by Warwick Inc. in the short run will attract new firms into he martet. This wil shit Warwick ine. demand curve to the left and t wit continue to shit left until Average Revenue equals Average Cost and only normal profits are made O The supemomal profits eamed by Wanwick Inc. in the short run will lead to the market demand aurve shifing to the right, which will raise the price fims can sell at and ts wil atract now frms into the market.…OA OB OC Alpha's Price Policy OD. High Low A с Beta's Price Policy High Low $20 $30 $20 $10 B D $10 The diagram above shows potential outcomes for two oligopolistic competitors. Beta's profits are shown in the upper right corner of each box and Alpha's profits in the lower left corner. If Alpha and Beta engage in collusion (and do not cheat), where will they end up? $15 $30 $15
- 2. The market for dark chocolate us characterized by Cournot duopolists - Honeydukes and Wonka industries. The market demand for dark chocolate is:P = 8 - 0.005Qdwhere P is the price per bar in dollars and Qd is dark chocolate's daily quantity demanded in bars (use qh to represent the quantity of dark chocolate sold by Honeydukes and qw to represent the quantity of dark chocolate sold by Wonka Industries). Honeydukes has a constant marginal cost of $2.50 per bar, while Wonka Industries has a constant marginal cost of $3.00 per bar. The firms move simultaneously in choosing their profit-maximizing quantity of output.a. Given the firms move simultaneously, what is the equation for Honeydukes' reaction function with qh expressed as a function of qw?b. Given the firms move simultaneously, what is the equation for Wonka's reaction function with qw expressed as a function of qh?c. What quantity of dark chocolate will each firm produce in equilibrium and what price will be established for a…1. If the firms in a monopolistically competitive marketare earning economic profits or losses in the short run,would you expect them to continue doing so in the longrun? Why? 2. Is a monopolistically competitive firmproductively efficient? Is it allocatively efficient? Whyor why not? 3. What stops oligopolists from acting together asa monopolist and earning the highest possible level ofprofits?uestlon 4 Of 16 A monopolistic competitor wishing to maximize profit will select a quantity where marginal cost equals demand. marginal cost equals average cost. marginal revenue equals average cost. O marginal revenue equals marginal cost. If a firm is producing a quantity where marginal revenue exceeds marginal costs, the firm should existing levels of production in order to expand ; decrease total costs O expand ; increase profitability decrease ; increase total revenue decrease ; increase profitability If a firm is producing a quantity where marginal cost exceeds marginal revenue, the firm should existing levels of production in order to decrease ; increase profitability expand ; decrease total costs O expand ; increase profitability decrease ; increase total revenue