MONOPOLISTIC COMPETITION Firms in monopolistically competitive markets: a are no
ID: 1120507 • Letter: M
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MONOPOLISTIC COMPETITION Firms in monopolistically competitive markets: a are not likely to engage in advertising. b. attempt to differentiate their products. C. d. All of the above are true Monopolistically competitive markets are comprised of: a. many firms selling differentiated products. b. many firms selling identical products. c. a few firms selling identical products. d. a few firms selling differentiated products. 3. Monopolistically competitive firms have some market power because of a. economies of scale. barriers to entry. industry domination. c. b. product differentiation. d. Use the graph for a monopolistically competitive firm to answer questions 4 and 5. MC 4.00 … 3.2…… 2.40 1.60-A.... ATC AVC MR Demand 850 1,700 2,550 Output 4. The profit-maximizing output is units, and the profit-maximizing price is a. 850; $4.00 b. 1,700; $1.60 c. 1,700; $3.20 d. 2,550; $2.40 , and At the profit-maximizing/loss-minimizing level of output, total revenue is total cost is a. $2,720; $4,080 b. $3,400; $2,720 c. $5,440; $2,720 d. $5440; $4,080 287 Chapter 13 AssignmentsExplanation / Answer
1. b) attempt to differentiate their products.
Monopolistic competition refers to a market situation in which there are large number of buyers and sellers. The sellers sell closely related or differentiated products but not identical product. The products are close substitutes of each other. Product differentiation is the most important feature of monopolistic competition. Each firm under monopolistic competition enjoys the monopoly over the brand of the commodity and thus the firm has the control over the price of the commodity. Under monopolistic competition, MR < AR and AR and MR curve slope downwards and MR curve lies below AR curve. But these curves are more elastic. Example: Firms producing different brands of shampoos like Sunsilk, Pantene, Head & Shoulders, Dove etc. Monopolistic competition combines the features of monopoly and perfect competition.
2. a) many firms selling differentiated products.
3. c) product differentiation
4. c) 1700; $ 3.20
Equilibrium quantity is where MR = MC.
Equilibrium price is where intersection of MR and MC curve meets the demand curve.
5. TR = Price x Quantity = 3.20 x 1700 = $ 5440
Total cost = 1700 x 2.40 = $ 4080
So, answer is d) $ 5440; $ 4080
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