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Chapter 16 Exercises 6-10 Monopolistic Competition. Gregory Mankiw. 7th edition.
6. Sparkle is one firm of many in the market for toothpaste, which is in long-run equilibrium.
a. Draw a diagram showing Sparkle’s demand curve, marginal-revenue curve, average-total-cost curve, and marginal-cost curve. Label Sparkle’s profit maximizing output and price.
6. Sparkle is one firm of many in the market for toothpaste, which is in long-run equilibrium.
b. What is Sparkle’s profit? Explain.
6. Sparkle is one firm of many in the market for toothpaste, which is in long-run equilibrium.
d. If the government forced Sparkle to produce the efficient level of output, what would happen to the firm? What would happen to Sparkle’s customers?
7. Consider a monopolistically competitive market with N firms. Each firm’s business opportunities are described by the following equations
a. How does N, the number of firms in the market, affect each firm’s demand curve? Why
b. How many units does each firm produce? (The answers to this and the next two questions depend on N.)
d. How much profit does each firm make?
e. In the long run, how many firms will exist in this market?
8. The market for peanut butter in Nutville is monopolistically competitive and in long-run equilibrium. One day, consumer advocate Skippy Jif discovers that all brands of peanut butter in Nutville are identical. Thereafter, the market becomes perfectly competitive and again reaches its long-run equilibrium. Using an appropriate diagram, explain whether each of the following variables increases, decreases, or stays the same for a typical firm in the market.
9. For each of the following pairs of firms, explain which firm would be more likely to engage in advertising.
10. Sleek Sneakers Co. is one of many firms in the market for shoes.
b. Suppose that over time consumers become more focused on stylistic differences among shoe brands. How would this change in attitudes affect each firm’s price elasticity of demand? In the long run, how will this change in demand affect Sleek’s price, output, and profit?
d. At the profit-maximizing price you identified in part (c), is Sleek’s demand curve elastic or inelastic? Explain.