Critical Thinking Questions
Review Questions
5 . What is the relationship between and ? 6 . How is the perceived for a monopolistically competitive different from the perceived for a or a perfectly competitive ? 7 . How does a monopolistic competitor choose its profit-maximizing quantity of output and ? 8 . How can a monopolistic competitor tell whether the it is charging will cause the to earn profits or experience losses? 9 . If the firms in a monopolistically competitive are earning economic profits or losses in the , would you expect them to continue doing so in the long run? Why? 10 . Is a monopolistically competitive firm productively efficient? Is it allocatively efficient? Why or why not? 11 . Will the firms in an oligopoly act more like a monopoly or more like competitors? Briefly explain. 12 . Does each individual in a prisoner’s dilemma benefit more from cooperation or from pursuing self- interest? Explain briefly. 13 . What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits?
Critical Thinking Questions
14 . Aside from , how can monopolistically competitive firms increase for their products? 15 . Make a case for why monopolistically competitive industries never reach . 16 . Would you rather have efficiency or variety? That is, one of the variety of products we have is that each product costs more per unit than if there were only one kind of product of a given type, like shoes. Perhaps a better question is, “What is the right amount of variety? Can there be too many varieties of shoes, for example?” 17 . Would you expect the to be more extreme (like a right angle) or less extreme (like a normal ) if each in the produces a near-identical product like OPEC and petroleum? What if each produces a somewhat different product? Explain your reasoning. 18 . When OPEC raised the of oil dramatically in the mid-1970s, experts said it was unlikely that the could stay together over the long term—that the incentives for individual members to cheat would become too strong. More than forty years later, OPEC still exists. Why do you think OPEC has been able to beat the odds and continue to collude? Hint: You may wish to consider non-economic reasons.
Problems
19 . Andrea’s Day Spa began to offer a relaxing aromatherapy treatment. The asks you how much to charge to maximize profits. The first two columns in provide the and quantity for the for treatments. The third column shows its total costs. For each level of output, calculate total , , average cost, and . What is the profit-maximizing level of output for the treatments and how much will the earn in profits?
Text from Principles of Microeconomics 3e, OpenStax, licensed CC BY-NC-SA 4.0. Access for free at openstax.org.
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