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Economics

Michael Parkin

Chapter 14

Monopolistic Competition - all with Video Answers

Educators

EB

Chapter Questions

03:50

Problem 1

Which of the following items are sold by firms in monopolistic competition? Explain your selections.
Cable television service
Wheat
Athletic shoes
Soda
Toothbrushes
Ready-mix concrete

Alejandro Ruiz
Alejandro Ruiz
Numerade Educator
03:25

Problem 2

The four-firm concentration ratio for audio equipment makers is 30 and for electric lamp makers it is $89 .$ The HHI for audio equipment makers is 415 and for electric lamp makers it is $2,850 .$ Which of these markets is an example of monopolistic competition?

Alejandro Ruiz
Alejandro Ruiz
Numerade Educator
05:15

Problem 3

Sara is a dot.com entrepreneur who has established a Web site at which people can design and buy sweatshirts. Sara pays $\$ 1,000$ a week for her Web server and Internet connection. The sweatshirts that her customers design are made to order by another firm, and Sara pays this firm $\$ 20$ a sweatshirt. Sara has no other costs. The table sets out the demand schedule for Sara's sweatshirts.
$$\begin{array}{cc}
\begin{array}{c}
\text { Price } \\
\text { [dollars per sweatshirt/ }
\end{array} & \begin{array}{c}
\text { Quantity demanded } \\
\text { (sweatshirts per week) }
\end{array} \\
\hline 0 & 100 \\
20 & 80 \\
40 & 60 \\
60 & 40 \\
80 & 20 \\
100 & 0
\end{array}$$
Calculate Sara's profit-maximizing output, price, and economic profit.

EB
Elsa Borrello
Numerade Educator
05:15

Problem 4

Sara is a dot.com entrepreneur who has established a Web site at which people can design and buy sweatshirts. Sara pays $\$ 1,000$ a week for her Web server and Internet connection. The sweatshirts that her customers design are made to order by another firm, and Sara pays this firm $\$ 20$ a sweatshirt. Sara has no other costs. The table sets out the demand schedule for Sara's sweatshirts.
$$\begin{array}{cc}
\begin{array}{c}
\text { Price } \\
\text { [dollars per sweatshirt/ }
\end{array} & \begin{array}{c}
\text { Quantity demanded } \\
\text { (sweatshirts per week) }
\end{array} \\
\hline 0 & 100 \\
20 & 80 \\
40 & 60 \\
60 & 40 \\
80 & 20 \\
100 & 0
\end{array}$$
a. Do you expect other firms to enter the Web sweatshirt business and compete with Sara?
b. What happens to the demand for Sara's sweatshirts in the long run? What happens to Sara's economic profit in the long run?

EB
Elsa Borrello
Numerade Educator
02:19

Problem 5

Which shows the situation facing Flight Inc., a producer of running shoes.
What quantity does Flight produce, what price does it charge, and what is its economic profit?

Maria Dearborn
Maria Dearborn
Numerade Educator
03:53

Problem 6

Which shows the situation facing Flight Inc., a producer of running shoes.
In the long run, how does Flight change its price and the quantity it produces? What happens to the market output of running shoes?

Tommy Nguyen
Tommy Nguyen
Numerade Educator
01:08

Problem 7

Which shows the situation facing Flight Inc., a producer of running shoes.
Does Flight have excess capacity in the long run? If it has excess capacity in the long run, why doesn't it decrease its capacity?

Wan Deng
Wan Deng
Numerade Educator
01:16

Problem 8

Which shows the situation facing Flight Inc., a producer of running shoes.
Is the market for running shoes efficient or inefficient in the long run? Explain your answer.

Daniel Cisneros
Daniel Cisneros
Numerade Educator
11:14

Problem 9

Suppose that Tommy Hilfiger's marginal cost of a jacket is a constant $\$ 100$ and the total fixed cost at one of its stores is $\$ 2,000$ a day. This store sells 20 jackets a day, which is its profit-maximizing number of jackets. Then the stores nearby start to advertise their jackets. The 'lommy Hilfiger store now spends $\$ 2,000$ a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 50 a day.
a. What is this store's average total cost of a jacket sold (i) before the advertising begins and (ii) after the advertising begins?
b. Can you say what happens to the price of a Tommy Hilfiger jacket, Tommy's markup, and Tommy's economic profit? Why or why not?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
03:50

Problem 10

Which of the following items are sold by firms in monopolistic competition in a developed economy such as the U.S.? Explain your selection.
Potato chips
Air conditioner
Television
Airplane
Battery
Rice

Alejandro Ruiz
Alejandro Ruiz
Numerade Educator
02:19

Problem 11

The HHI for automobiles is $2,350,$ for sporting goods it is $161,$ for batteries it is $2,883,$ and for jewelry it is $81 .$ Which of these markets is an example of monopolistic competition?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
05:15

Problem 12

Lorie teaches singing. Her fixed costs are $\$ 1,000$ a month, and it costs her $\$ 50$ of labor to give one class. 'I'he table shows the demand schedule for Lorie's singing lessons.
$$\begin{array}{cc}
\begin{array}{c}
\text { Price } \\
\text { (dollars per lesson) }
\end{array} & \begin{array}{c}
\text { Quantity demanded } \\
\text { (lessons per month) }
\end{array} \\
\hline 0 & 250 \\
50 & 200 \\
100 & 150 \\
150 & 100 \\
200 & 50 \\
250 & 0
\end{array}$$
Calculate Lorie's profit-maximizing output, price, and economic profit.

EB
Elsa Borrello
Numerade Educator
06:44

Problem 13

Lorie teaches singing. Her fixed costs are $\$ 1,000$ a month, and it costs her $\$ 50$ of labor to give one class. 'I'he table shows the demand schedule for Lorie's singing lessons.
$$\begin{array}{cc}
\begin{array}{c}
\text { Price } \\
\text { (dollars per lesson) }
\end{array} & \begin{array}{c}
\text { Quantity demanded } \\
\text { (lessons per month) }
\end{array} \\
\hline 0 & 250 \\
50 & 200 \\
100 & 150 \\
150 & 100 \\
200 & 50 \\
250 & 0
\end{array}$$
a. Do you expect other firms to enter the singing lesson business and compete with Lorie?
b. What happens to the demand for Lorie's lessons in the long run? What happens to Lorie's economic profit in the long run?

Jiapeng Guo
Jiapeng Guo
Numerade Educator
03:03

Problem 14

Use the figure in the next column, which shows the situation facing Mike's Bikes, a producer of mountain bikes. The demand and costs of other mountain bike producers are similar to those of Mike's Bikes.
What quantity does the firm produce and what is its price? Calculate the firm's economic profit or economic loss.

Lourence Gonhovi
Lourence Gonhovi
Numerade Educator
00:44

Problem 15

Use the figure in the next column, which shows the situation facing Mike's Bikes, a producer of mountain bikes. The demand and costs of other mountain bike producers are similar to those of Mike's Bikes.
What will happen to the number of firms producing mountain bikes in the long run?

Victor Salazar
Victor Salazar
Numerade Educator
01:23

Problem 16

Use the figure in the next column, which shows the situation facing Mike's Bikes, a producer of mountain bikes. The demand and costs of other mountain bike producers are similar to those of Mike's Bikes.
a. How will the price of a mountain bike and the number of bikes produced by Mike's Bikes change in the long run?
b. How will the quantity of mountain bikes produced by all firms change in the long run?

Jingchi Yan
Jingchi Yan
Numerade Educator
00:44

Problem 17

Use the figure in the next column, which shows the situation facing Mike's Bikes, a producer of mountain bikes. The demand and costs of other mountain bike producers are similar to those of Mike's Bikes.
Is there any way for Mike's Bikes to avoid having excess capacity in the long run?

Victor Salazar
Victor Salazar
Numerade Educator
01:23

Problem 18

Use the figure in the next column, which shows the situation facing Mike's Bikes, a producer of mountain bikes. The demand and costs of other mountain bike producers are similar to those of Mike's Bikes.
Is the market for mountain bikes efficient or inefficient in the long run? Explain your answer.

Jingchi Yan
Jingchi Yan
Numerade Educator
04:39

Problem 19

KFC China's menu has evolved and become highly localized. It eliminated "super-size" items altogether, and added oven-roasted chicken, sandwiches, wraps, and different proteins such as fish, shrimp, and beef. since $2002,$ KFC China has been opening for breakfast. They introduced Chinese favorite breakfast congee, which is now the number one seller at breakfast. KFC China is also positioned to appeal to Chinese families. Many restaurants have a play area, and hostesses organize activities.
a. Explain how KFC has differentiated its fast food to compete with other restaurants in terms of quality, variety and marketing.
b. Predict whether KFC produces at, above, or below the efficient scale in the short run.

Bon Zapata
Bon Zapata
Numerade Educator
04:39

Problem 20

KFC China's menu has evolved and become highly localized. It eliminated "super-size" items altogether, and added oven-roasted chicken, sandwiches, wraps, and different proteins such as fish, shrimp, and beef. since $2002,$ KFC China has been opening for breakfast. They introduced Chinese favorite breakfast congee, which is now the number one seller at breakfast. KFC China is also positioned to appeal to Chinese families. Many restaurants have a play area, and hostesses organize activities.
a. Predict whether the price setting of KFC is at, above, or below marginal cost:
(i) In the short run.
(ii) In the long run.
b. If KFC charges its customers more for a localized menu and a family-friendly atmosphere, do you think that it makes the market for fast food inefficient?

Bon Zapata
Bon Zapata
Numerade Educator
05:40

Problem 21

Apple has unveiled a smartwatch-the Apple Watch- its first new product line since the iPad and the death of its co-founder Steve Jobs. The device runs apps, acts as a health and fitness tracker and communicates with the iPhone. Source: BBC News, March 9, 2015
a. How is Apple attempting to maintain economic profit?
b. Draw a graph to illustrate the cost curves and revenue curves of Apple in the market for smartwatch.
c. Show on your graph in part
(b) the short-run economic profit.

Harmender Singh Yadav
Harmender Singh Yadav
Numerade Educator
04:14

Problem 22

Apple has unveiled a smartwatch-the Apple Watch- its first new product line since the iPad and the death of its co-founder Steve Jobs. The device runs apps, acts as a health and fitness tracker and communicates with the iPhone. Source: BBC News, March 9, 2015
a. Explain why the economic profit that Apple makes on its smartwatch is likely to be temporary.
b. Draw a graph to illustrate the cost curves and revenue curves of Apple in the market for smartwatches in the long run. Mark the firm's excess capacity.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
03:52

Problem 23

Bianca bakes delicious cookies. Her total fixed cost is $\$ 40$ a day, and her average variable cost is $\$ 1$ a bag. Few people know about Bianca's Cookies, and she is maximizing her profit by selling 10 bags a day for $\$ 5$ a bag. Bianca thinks that if she spends $\$ 50$ a day on advertising, she can increase her market share and sell 25 bags a day for $\$ 5$ a bag.
If Bianca's advertising works as she expects, can she increase her economic profit by advertising?

Yang Su
Yang Su
Numerade Educator
01:23

Problem 24

Bianca bakes delicious cookies. Her total fixed cost is $\$ 40$ a day, and her average variable cost is $\$ 1$ a bag. Few people know about Bianca's Cookies, and she is maximizing her profit by selling 10 bags a day for $\$ 5$ a bag. Bianca thinks that if she spends $\$ 50$ a day on advertising, she can increase her market share and sell 25 bags a day for $\$ 5$ a bag.
If Bianca advertises, will her average total cost increase or decrease at the quantity produced?

Carson Merrill
Carson Merrill
Numerade Educator
01:23

Problem 25

Bianca bakes delicious cookies. Her total fixed cost is $\$ 40$ a day, and her average variable cost is $\$ 1$ a bag. Few people know about Bianca's Cookies, and she is maximizing her profit by selling 10 bags a day for $\$ 5$ a bag. Bianca thinks that if she spends $\$ 50$ a day on advertising, she can increase her market share and sell 25 bags a day for $\$ 5$ a bag.
If Bianca advertises, will she continue to sell her cookies for $\$ 5$ a bag or will she change her price?

Carson Merrill
Carson Merrill
Numerade Educator
05:54

Problem 26

Champagne exports have tripled in the past 20 years. That poses a problem for northern France, where the bubbly hails from- not enough grapes. So French authorities have unveiled a plan to extend the official Champagne grape-growing zone to cover 40 new villages. This revision has provoked debate. The change will take several years to become effective. In the meantime the vineyard owners whose land values will jump markedly if the changes are finalized certainly have reason to raise a glass.
Source: Fortune, May 12,2008
a. Why is France so strict about designating the vineyards that can use the Champagne label?
b. Explain who most likely opposes this plan.

Erin Moser
Erin Moser
Numerade Educator
05:54

Problem 27

Champagne exports have tripled in the past 20 years. That poses a problem for northern France, where the bubbly hails from- not enough grapes. So French authorities have unveiled a plan to extend the official Champagne grape-growing zone to cover 40 new villages. This revision has provoked debate. The change will take several years to become effective. In the meantime the vineyard owners whose land values will jump markedly if the changes are finalized certainly have reason to raise a glass.
Source: Fortune, May 12,2008
Assuming that vineyards in these 40 villages are producing the same quality of grapes with or without this plan, why will their land values "jump markedly" if this plan is approved?

Erin Moser
Erin Moser
Numerade Educator
02:05

Problem 28

Under Armour, the red-hot athletic-apparel brand, has joined Nike, Adidas, and New Balance as a major player in the market for athletic footwear. Under Armour plans to revive the long-dead cross-training category. But will young athletes really spend $\$ 100$ for a cross training shoe to lift weights in? Source: $T$ ime, May 26,2008
What factors influence Under Armour's ability to make an economic profit in the cross-training shoe market?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
04:44

Problem 29

After you have studied Economics in the News on
PP. $372-373,$ answer the following questions.
a. Why do you think Babolat worked with the firm that helped Nintendo develop the Wii remote?
b. How would Babolat's cost curves $(M C$ and $A T C$ ) have been different if they had not worked with the Wii developer?
c. How do you think the launch of Babolat's ncw-technology racquet has influenced the demand for other firms' racquets?
d. Explain the effects of the introduction of the ncw-technology racquet on Prince and other firms in the market for tennis racquets.
e. Draw a graph to illustrate your answer to part (c). Explain your answer.
f. What do you predict will happen to the markup in the market for smart racquets?
g. What do you predict will happen to excess capacity in the market for smart racquets? Explain your answer.

Lindsay Bur
Lindsay Bur
Numerade Educator