ECO 201 Chapter 13 – Flashcards
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Why is the marginal revenue curve downward slope for a monopolistically competitive firm?
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Because the firm must cut the price in order to sell more.
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How does a monopolistically competitive firm maximize profit in the short run?
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Produce at the quantity where marginal revenue equals marginal cost. Price is determined by the demand curve.
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If new firms enter the market what happens to the elasticity of a particular firms DC? Why? Does it shift?
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It becomes more elastic because consumers have additional firms to buy goods from. The DC shifts to the left and has a less steep slope.
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How do you find profit for a firm in a monopolistically competitive market?
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The Q is determined by where MW=MC, but P is determined by DC, so it is the area between that Q on the DC down to that Q on the ATC curve.
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Are there profits for a monopolistically competitive firm in the long run?
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No, profits are eliminated in the long run.
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Is zero economic profit inevitable in the long run?
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No, firms can either sell a differentiated product or find a way of producing an existing product at a lower cost.
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Do monopolistically competitive firms charge a price greater than marginal cost in the long run?
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Yes.
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Do monopolistically competitive firms produce at minimum ATC in the long run?
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No.
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Or monopolistically competitive markets productively efficient, allocatively efficient, neither, or both? Do consumers benefit from this?
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They are neither. Consumers benefit because they have more products to choose from.
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What is marketing?
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All the activities necessary for a firm to sell a product to a consumer.
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What is brand management? Why do firms use this?
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The actions of a firm intended to maintain the differentiation of a product overtime. They use this to postpone the time when they will no longer be able to earn economic profits.
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Why do firms advertise?
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Firms advertise in the an attempt to shift the DC for a product to the right and make it more inelastic.
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What happens if a firm successfully advertises?
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It will be able to increase the price it charges without losing as many customers.
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Advertising costs money. When is advertising good?
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If the increase in revenue from advertising is greater than the increase in costs. Firm makes π.
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What makes a firm successful?
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It's ability to differentiate its product from others and to produce it at a lower ATC than competing firms.
