SOLVED

21) According to a Wall Street Journal article, hhgregg has differentiated itself from its competition, particularly from large chain stores such as Best Buy, A) by charging lower prices. B) by providing better customer service. C) by selling inferior products. D) by offering discounts for cash sales. 22) The financial situation at Starbucks in the late 2000s illustrates the fact that maintaining long-run profits in a monopolistically competitive market is A) impossible. B) very difficult. C) fairly easy. D) almost always guaranteed. 23) In theory, in the long run, monopolistically competitive firms earn zero profits. However, in reality there are some ways by which a firm can avoid losing profits. Which of the following is one such way? A) gradually increase the mark up on the goods produced B) lower the price of its products to expand its market share C) identify new markets and develop products precisely for those markets D) find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment 24) Refer to Figure 11-8. Assume Starbucks is successful with its new health and wellness stores, and as a result it is able to earn economic profits. Which of the graphs in the figure above reflects this? A) Panel A B) Panel B C) Panel C D) either Panel A or Panel B 25) If a monopolistically competitive firm breaks even, the firm is earning as much in this industry as it could in any other comparable industry. 26) A monopolistically competitive industry that earns economic profits in the short run will be able to expand its market share even if the market size remains constant. 27) What is the difference between zero accounting profit and zero economic profit? 28) Refer to Figure 11-9 to answer the following questions. a.What is the profit-maximizing output level? b.What is the profit-maximizing price? c.What is the average total cost at the profit-maximizing output level? d.What area represents the firm’s profit? e.At which output level are economies of scale exhausted? b.The profit-maximizing price is P4. c.The ATC at the profit-maximizing output level is P2. d.The firm’s profit is represented by area P2P4ed. e.Economies of scale are exhausted at output Q3. 29) Refer to Figure 11-10. Figure 11-10 depicts a monopolistically competitive barber shop. Use the diagram to answer the following questions. a.Suppose the average variable cost of production is $15 when output equals 110 haircuts and $15.25 when output equals 140 haircuts. If the firm wants to maximize its profit or minimize its losses, how many haircuts will it produce and what price should it charge? Explain your answer. b.Calculate the firm’s profit or loss. c.What is likely to happen in this industry over time as it moves to its new long-run equilibrium? d.Suppose the barber shop depicted in the diagram remains in the industry. Is this barber shop likely to produce this same quantity of haircuts as in part (a) in the long run? a.Output = 110, Price = $21 where by MR=MC. The barber shop will minimize its losses since P > AVC. b.The economic loss = $440 (total revenue = $21 × 110 = $2,310; total cost = $25 × 110 = $2,750). c.Short-run losses will lead some firms to exit the market. As a result, the demand curve for a firm remaining in the market will shift to the right and become less elastic. Exit continues until economic losses are eliminated and each firm breaks even. d.No, its demand increases and becomes less elastic. It will produce a larger quantity.