ECON 213 Problem Set ch. 12 Liberty University Solution


At your high school reunion, a friend describes his plan to take a break from his florist shop and sail around the world. He says that if he continues to make the same economic profit for the next 5 years, he will be able to afford the trip.


Determine whether the markets, businesses, or products listed below belong in a competitive market, a monopoly, or a monopolistically competitive market.


The figure below depicts a monopolistically competitive firm operating in the short run. Label the diagram with the items listed to the right of the figure. You will have to decide whether the firm is making a profit or a loss.


Now that you have studied monopolistic competition, let's see how well you can distinguish a firm in a monopolistically competitive market from a firm in a perfectly competitive market. Given the description of the firm below, decide whether it applies to monopolistic competition, perfect competition, or both. You may have to adjust the scroll bar to see the complete list.


Because monopolistically competitive firms produce differentiated products, advertising is widespread as firms try to attract new customers or to capture customers from rival firms. However, advertising can have both benefits and costs. Let’s see how.

Although there are potential benefits to advertising, it does not come without costs. Suppose the figure below shows the average cost curves of American Eagle before and after advertising.


Katherine owns and operates one of the many independent coffee shops in Boston, which has everything from espresso to pour overs, to lattes and cold brew, as well as a wide selection of baked goods. However, Katherine uses a unique selection of single origin, organically grown, hand-roasted coffee beans. Katherine can run her coffee shop as a monopoly, as she is the only one in Boston with her unique selection of beans. The following figure depicts the demand curve that she faces and the costs that she incurs. Using the area tool in the graph below, draw the area that represents the profit or loss. Your answer should be a rectangle drawn with four corners.

Of the following statements, which one best describes what we can expect to happen to this market in the long run?


Examine the figure above, which represents a monopolistically competitive firm, and answer the questions below.


Sort the following outcomes of product differentiation by whether they are costs or benefits of monopolistic competiton.


The market for smartphones is characterized as a monopolistically competitive market, as companies differentiate their product from that of competitors through extensive marketing campaigns. One firm in this market is depicted below, and it is in long-run equilibrium. Most smartphone manufacturers are switching to the use of OLED screens in their smartphones because of the superior brightness and weight savings compared to alternative screen technology. This has resulted in an acute shortage of OLED screens, and it has driven up the cost of OLED screens in the short run.