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a) The monopoly portion of the market structure "monopolistic competition" refers to , while the competition portion refers to O Differentiated products; barriers to entry 0 Differentiated products; free entry and exit 0 Identical products; barriers to entry 0 Identical products; free entry and exit b) Continue with part (a): What does the monopoly portion refer to? O The demand curve that a typical ?rm faces is negatively sloped 0 All of the answers are correct 0 Firms in the long run will earn zero economic pro?ts 0 Because of brand loyalty, a ?rm can raise the price of its product without worrying about any of its customers will switch to buy other similar brands c) Suppose a monopolistically competitive ?rm has MC=4Q+5
a) The monopoly portion of the market structure "monopolistic competition" refers to , while the competition portion refers to O Differentiated products; barriers to entry 0 Differentiated products; free entry and exit 0 Identical products; barriers to entry 0 Identical products; free entry and exit b) Continue with part (a): What does the monopoly portion refer to? O The demand curve that a typical ?rm faces is negatively sloped 0 All of the answers are correct 0 Firms in the long run will earn zero economic pro?ts 0 Because of brand loyalty, a ?rm can raise the price of its product without worrying about any of its customers will switch to buy other similar brands c) Suppose a monopolistically competitive ?rm has MC=4Q+5. Its demand is P=145-BQ and marginal revenue is MR=145-BQ. What is its pro?t-maximizing output level? 0 17 O14 O15 016 d) If the following numbers show the four-?rm concentration ratio of a given industry, which industry is the least competitive? O 75 095 015 025 e) Which of the following is CORRECT about a Nash equilibrium? 0 Each ?rm produces at the output level where it does not have incentives to change 0 Each ?rm produces at the output level where ATC is at its minimum 0 Each ?rm produces at the output level where P=ATC 0 Each ?rm produces at the output level where pro?ts are equal to zero
Expert Solution
Step-by-step explanation
a)
Monopolistic market structure is characterised by differentiated products.
Under perfect competition, there are neither entry nor exit barriers. Firms can enter and exit freely
The answer is; Differentiated products; free entry and exit
b)
Demand curve of a typical monopoly is downward sloping. The first statement is correct
In the long run, the firms' profits can remain high unlike for perfect competitive firms which earn zero profits. The second and third statements are wrong
Demand being downward sloping, a rise in price reduces quantity demanded of the product. The last statement is wrong
The answer is: The demand curve that a typical firm faces is negatively sloped
c)
The firm maximises profit at the output level where MR=MC
145-6Q=4Q+5
4Q+6Q=145-5
10Q=140
Q=140/10
Q=14
Profit maximising output is 14
d)
The four firm concentration ratio ranges from 0 to 100
Where 0 represents a perfect competitive industry while 100 represents the monopoly industry
Values close to 100 represent least competitive industry
The answer is 95
e)
Under Nash equilibrium, neither firm has an incentive to switch to alternative strategy. Both firms will lose if they change their strategies
The answer is: Each firm produces at the output level where it does not have incentives to change
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