Question

Why does a local McDonald's face a downward-sloping demand curve for its Quarter Pounder? Part 2 In monopolistically competitive markets, Part 3 A. changing the price affects the quantity sold because firms are price takers. B. changing the price affects the quantity sold because there are only a few sellersthere are only a few sellers. C. changing the price affects the quantity sold because firms sell differentiated products. D. changing the price does not affect the quantity sold because firms have market powerfirms have market power. E. changing the price does not affect the quantity sold because firms sell differentiated productsfirms sell differentiated products. Part 4 If McDonald's raises the price it charges for Quarter Pounders above the prices charged by other fast-food restaurants, won't it lose all its customers? ▼ Yes No .

          Why does a local McDonald's face a downward-sloping demand curve for its Quarter Pounder?
Part 2
In monopolistically competitive markets,
Part 3
A.
changing the price affects the quantity sold because firms are price takers.
B.
changing the price affects the quantity sold because
there are only a few sellersthere are only a few sellers.
C.
changing the price affects the quantity sold because firms sell differentiated products.
D.
changing the price does not affect the quantity sold because
firms have market powerfirms have market power.
E.
changing the price does not affect the quantity sold because
firms sell differentiated productsfirms sell differentiated products.
Part 4
If McDonald's raises the price it charges for Quarter Pounders above the prices charged by other fast-food restaurants, won't it lose all its customers?  
▼
Yes
No
.

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Added by Irene C.

Principles of Economics

Gregory Mankiw 8th Edition

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Solved by Expert Andrew Davis

10/08/2022

Step 1

A downward-sloping demand curve indicates that as the price of a product decreases, the quantity demanded increases, and vice versa. This is typical for most goods, including a local McDonald's Quarter Pounder. Show more…

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Why does a local McDonald's face a downward-sloping demand curve for its Quarter Pounder? Part 2 In monopolistically competitive markets, Part 3 A. changing the price affects the quantity sold because firms are price takers. B. changing the price affects the quantity sold because there are only a few sellersthere are only a few sellers. C. changing the price affects the quantity sold because firms sell differentiated products. D. changing the price does not affect the quantity sold because firms have market powerfirms have market power. E. changing the price does not affect the quantity sold because firms sell differentiated productsfirms sell differentiated products. Part 4 If McDonald's raises the price it charges for Quarter Pounders above the prices charged by other fast-food restaurants, won't it lose all its customers? ▼ Yes No .

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Transcript

00:01 So before i look at the questions, let's refresh our memories about what a monopoly looks like.

00:06 Again, a monopolist operates in a market, so that means it has a quantity and a price.

00:13 And a monopolist wants to set marginal revenue equals to marginal cost.

00:17 It maximizes its profits by continuing to produce up until the marginal unit does no longer contributes to profits.

00:24 So we have a demand curve, and that demand curve induces the marginal revenue curve.

00:30 The marginal revenue curve is steeper because it incorporates the fact that as you sell more units, you drive the price down on all your other units.

00:39 And it has a cost function right there.

00:41 It sets marginal revenue equal to marginal cost, which induces the following price.

00:47 And that incentivizes the creation of monopolist profits, right? that red -shaded area.

00:53 So let's go through this.

00:57 The monopoly firms face downward sloping demand curve.

01:01 So their pq must be on demand curve.

01:06 Well, as you've seen from the diagram that i've sketched, this is wrong.

01:12 Monopolis set marginal revenue equal to marginal cost, right? so, oh, sorry, this is the correct one.

01:24 Miyacoba, exactly, right? even though the marginal revenue is being set equal to marginal cost, right, this induces this point, right? if you choose this, right, you end up here, right? whatever quantity you produce gets fed into the demand curve and the price is set off that demand curve, right? so i'm choosing a point that's off the demand curve, but the quantity that i choose hits the demand curve and determines the price.

02:02 So the price and quantity are indeed a point on the demand curve.

02:05 A is the correct answer...

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