Monopolistic Competition Long-run Equilibrium

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What is the relationship between the average price (or average revenue) and the average cost in the short-run equilibrium for a monopolistically competitive firm making supernormal profits?

The average price (or average revenue) will be above the average cost. (correct)

The average price (or average revenue) will be below the average cost.

The average price (or average revenue) will be equal to the average cost.

There is no relationship between the average price (or average revenue) and the average cost.

What is the relationship between the average price (or average revenue) and the average cost in the short-run equilibrium for a monopolistically competitive firm making a loss?

The average price (or average revenue) will be equal to the average cost.

The average price (or average revenue) will be below the average cost. (correct)

There is no relationship between the average price (or average revenue) and the average cost.

The average price (or average revenue) will be above the average cost.

What is the firm's strategy in the short-run when it is making a loss?

The firm will shut down production.

The firm will produce where MR = MC to minimize losses. (correct)

The firm will produce where AR = AC to break even.

The firm will produce where MR = MC to maximize profits.

What is the relationship between the average price (or average revenue) and the average cost in the long-run equilibrium for a monopolistically competitive firm?

The average price (or average revenue) will be equal to the average cost. (D) Signup and view all the answers

What is the firm's strategy in the long-run to achieve equilibrium?

The firm will produce where MR = MC to maximize profits. (B) Signup and view all the answers

What is the reason for the lack of supernormal profits in the long-run equilibrium for a monopolistically competitive firm?

There is freedom of entry to the market. (C) Signup and view all the answers

What condition leads to a firm in monopolistic competition earning only normal profits in the long run?

AC = AR (A) Signup and view all the answers

In monopolistic competition, why does the entry of new firms lead to a fall in demand for each existing firm's product?

Shift in the average revenue curve downward (D) Signup and view all the answers

Why did Lam Chin's restaurant become less profitable after a new restaurant opened nearby?

Decreased demand for her restaurant's offerings (D) Signup and view all the answers

What will happen to the market supply in monopolistic competition when firms start making losses in the short run?

Market supply will decrease (A) Signup and view all the answers

What action might Lam Chin consider if another restaurant opens in her town?

Sell her restaurant and move on (D) Signup and view all the answers

What happens to the market supply when firms in monopolistic competition make profits?

Market supply increases (A) Signup and view all the answers

What factor plays a crucial role in determining the success of a coffee shop, according to the text?

The location of the coffee shop (B) Signup and view all the answers

How have coffee shops differentiated themselves from each other?

By providing free wireless services and relaxed seating (C) Signup and view all the answers

What is a notable change in the coffee culture of the UAE mentioned in the text?

Emergence of Western-style cafes (A) Signup and view all the answers

What are some common reasons for people to visit coffee shops mentioned in the text?

To participate in work meetings (A) Signup and view all the answers

Which element is NOT listed as part of the attempts made by coffee shops to distinguish themselves?

Discounted coffee prices (C) Signup and view all the answers

What marketing strategy is suggested for successful operations of a coffee shop based on the text?

Ensuring the geographical location is easily accessible to customers (A) Signup and view all the answers

Why can't a monopolistically competitive firm make supernormal profit in the long run?

As there is freedom of entry and exit in the market. (C) Signup and view all the answers

At the long-run equilibrium in monopolistic competition, where does the firm produce?

At a point where marginal cost is higher than price. (A) Signup and view all the answers

Which condition is not met by a monopolistically competitive firm at its profit-maximizing output level?

Productive efficiency. (D) Signup and view all the answers

In monopolistic competition, what happens if a firm does not produce at the lowest point of its average cost curve?

It remains not productively efficient. (C) Signup and view all the answers

Why can a firm in monopolistic competition not be allocatively efficient?

It sets prices above marginal cost. (D) Signup and view all the answers

What distinguishes the equilibrium output level of a monopolistically competitive firm from being both productively and allocatively efficient?

Producing where price equals marginal cost. (D) Signup and view all the answers

What is product differentiation in the context of monopolistic competition?

Making a product appear different from competitors' products through branding, packaging, and advertising (C) Signup and view all the answers

Which of the following is an example of distribution differentiation?

A clothing retailer selling products exclusively through physical stores in malls (D) Signup and view all the answers

In the short run, what is the profit-maximizing condition for a firm in a monopolistically competitive market?

Marginal revenue equals marginal cost (C) Signup and view all the answers

In Figure 1, what is the supernormal profit earned by the firm?

Area BEFG (A) Signup and view all the answers

If a firm in a monopolistically competitive market is earning supernormal profits in the short run, what is likely to happen in the long run?

New firms will enter the market, reducing profits for all firms (D) Signup and view all the answers

What is the primary reason for firms to engage in product differentiation in a monopolistically competitive market?

To increase the perceived value of their product compared to competitors (B) Signup and view all the answers