ECON 260 Price Price MC MC Quantity Price Price Ma ATC a Quanlity 30. Refer to F
ID: 1114750 • Letter: E
Question
ECON 260 Price Price MC MC Quantity Price Price Ma ATC a Quanlity 30. Refer to Figure3. Which of the graphs depicts the situation for a profit-maximizing firm ina monopolistically competitive a. Panel a. b. Panel b. c. Panel c. d. Panel d 31. Refer to Figurei3, The firm dapicted in panel b faces a horizontal demand cunve. Ifpanel b depicts a profit masximizing firm, a. it is able to choose the price at which it sells its product b. it would not have excess capacity in its production as long as it is earning zero economic profit. c. it could be operating in either a perfectly competitive market or in a monopolistically competitive market d. the firm can always raise its profit by increasing production since consumers will buy as much as the firm can produce. 32. A monopolistically competitive firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to S6, has marnginal cost equal to S6, and has average total cost equal to $12. From this information, which of the following is NOT consistent? a. firms are likely to leave this market in the long run c. the firm is currently maximizing its profit. b. the profits of the firm are negative. d. the profits of the firm are positive. 33. For example, advertising that uses celebyity endonsemets is o kel intended to provide a signal of product quality. Thus, critics of advertising argue that in some markets advertising may a. attract less informed buyers into the market b. attract products of lower quality into the market. c. enhance competition in markets to an d. decrease elasticity of demand allowing firms to charge a larger markup over marginal cost. unnecessary degree. Figur4Explanation / Answer
30). a). Panel a.
Panel a represents the profit maximizing firm in a monopolistic competition. This is because in this case, the marginal cost curve cuts the marginal revenue curve from below the average revenue curve at equilibrium level of output. So at this point, it is considered that average total cost curve will also lie below the demand curve i.e the average revenue curve. So, when average cost is less than the average revenue, the firm is profit maximizing. While Panel c could have been considered as an answer, however this is not the case since at the equilibrium level of output, average total cost curve is just cutting average revenue(demand curve), which means that the firm is neither earning losses or profit.
31) . c). Could be operating either in a perfectly competitive market or a monopolistically competitive market.
This answer is true because only when there is perfect competition, the MR curve will coincide with demand curve(average revenue curve). Thus, when MR = MC = AR in a profit maximising condition, the market has to be a perfectly competitive market.
32). d). The profits of the firm is positive.
The positive of the firm is negative in this case, because the price charged at this point ($10), which is the average price at this point, is less than the average total cost ($12). Thus, the profits of the firm are negative at this point.
33). b). attract products of lower quality into markets
This is because, a celebrity endorsing a product will make consumers feel that the product quality is good, however that might or might not be the case. The consumers are in a way being "fooled" by the company by showing attractive but fake content about the quality of product.
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