University:
Bradley University
Course:
ECO 199 | Foundational Topics in Economics
Academic year:

2023
Views:

63

Pages:

2
Author:

esfredint7qo

Short Answer – Create a brief answer to the following questions. 1. What is the key difference between monopolistically competitive firms and perfectly competitive firms? 2. How does a monopolist determine the optimal quantity of output? 3. When would a monopolist choose to shut down in the short run? 4. How do barriers to entry help maintain monopoly power? 5. Why do monopolistically competitive firms spend more on advertising than monopolies? 6. How does the entry of new firms affect profits in a monopolistically competitive market? 7. Why is the demand curve faced by a monopolistically competitive firm more elastic than that of a monopolist? 8. How can branding create pricing power in monopolistic competition? 9. Why does a monopolistically competitive firm earn zero economic profit in the long run? 10. How does a monopolist use the demand curve after finding the profit-maximizing quantity? Answers 1. Monopolistically competitive firms produce heterogeneous (branded) products to tray and gain price-setting power. Perfectly competitive firms produce identical products and are price takers. 2. By producing the quantity where marginal revenue equals marginal cost. 3. If the price falls below average variable cost, continuing production results in greater losses than shutting down. 4. They prevent or discourage new firms from entering the market, preserving the monopolist’s position. 5. To establish and maintain brand identity and loyalty, differentiating their product in a competitive environment. 6. New firms increase competition, making existing firms’ demand curves more elastic and reducing profits. 7. Because there are many substitutes available, so consumers are more responsive to price changes. 8. It builds customer loyalty, allowing firms to raise prices without losing all their customers. 9. Because free entry and exit drive profits to zero as firms enter in response to short-run profits. 10. To determine the highest price consumers are willing to pay for that quantity.