Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 13, Problem 21PAA
To determine
To explain: The behaviors in which the given firm is engaged and the effect of this engagement.
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Draw the graph of the product differentiation formula of Pepsi Industry.
I am intrigued by the following article detailing how Nestle agreed to pay Starbucks $7.2B to distribute and sell Starbucks’ packaged coffees and teas around the world. Why would Nestle purposely put its competitors’ brands right next to it in the store, and then pay them for the privilege? Why wouldn’t Starbucks just take care of distributing its own brands rather than go through Nestle? Please explain how this outcome could be profit maximizing for both firms
The following graph represents a monopolistically competitive firm in long-run equilibrium.
Place the black point (cross sign) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive
company. Next, place the grey star on the graph to indicate the point where the LRAC reaches a minimum.
PRICE PER UNIT (Dollars)
500
450
400
350
300
250
200
150
100
50
MC
0
0
50
LRAC
MR
Demand
100 150 200 250 300 350 400 450 500
QUANTITY (Units)
Monopolistically Competitive Outcome
Minimum of the LRAC
The long-run equilibrium price is $
(Hint: Use the graph to find the numeric value of the price at equilibrium.)
The long-run equilibrium quantity is
units.
The LRAC curve is at its minimum at a quantity of
The long-run equilibrium price is
units.
the marginal cost of producing the equilibrium output.
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Chapter 13 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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- Briefly explain using a graph whether given statement is true or false. “If firms in a monopolistically competitive industry are earning economic profits, new firms will enter the industry. Eventually, the representative firm will find that its demand curve has shifted to the left until it is just tangent to its average cost curve and it is earning zero profit. Because firms are earning zero profit at that point, some firms will leave the industry, and the representative firm will find that its demand curve will shift to the right. In long-run equilibrium, price will be above average total cost and each firm with make economic profit.”arrow_forward2. Some companies are considering using Goògle's Android operating system for their tablet PCs and netbooks. How would you expect Microsoft to react if Google succeeds in entering the market for desktop applications in this way?arrow_forward10:43 A docs.google.com Your answer Syukri, Iqmal and Amir run the only shop in Wang Ulu. They sell electrical goods such as televisions, washing machines, etc. However, their objectives are different from each other. Syukri wants to make as much profit as he can, Iqmal wants to sell as many goods as he can without losing money, and Amir wants to earn as much revenue as he can. The graph below illustrates their respective profits. (Note: The length of each square on the Y-axis represents RM100, and the length of each square on the X-axis represents 100 units.) What is the quantity for Syukri? Revenue, Cost MC AC Quantity 100 200 300arrow_forward
- Suppose there are only two automobile companies, Ford and Chevrolet. Ford believes that Chevrolet will match any price it sets, but Chevrolet too is interested in maximizing profit. Use the following price and profit data to answer the following questions. Ford's Chevrolet's Ford's Chevrolet's Selling Selling Profits Profits Price Price (millions) (millions) $4,000 $ 4,000 $ 8 $ 8 4,000 8,000 12 4,000 12,000 14 2 8,000 4,000 12 8,000 8,000 10 10 8,000 12,000 12 12,000 4,000 14 12,000 8,000 12 12,000 12,000 1. What price will Ford charge? 2. What price will Chevrolet charge once Ford has set its price? 3. What is Ford's profit after Chevrolet's response? 4. If the two firms collaborated to maximize joint profits, what prices would they set? 5. Given your answer to part (d), how could undetected cheating on price cause the cheating firm's profit to rise?arrow_forwardThe following graph shows cost curves for a monopolistically competitive firm. Place the black point (cross symbol) on the graph to indicate the short-run profit-maximizing price and quantity for a monopolistically competitive firm. 500 450 PRICE PER UNIT (Dollars) 400 350 300 250 200 150 100 50 50 MC 0 0 50 100 150 LRAC MR Demand 200 250 300 350 400 450 500 QUANTITY (Units) + Monopolistically Competitive Outcome The following graph shows cost curves for a perfectly competitive firm. Place the grey point (star symbol) on the graph to indicate the point where a perfectly competitive firm would produce. ? 500 450 400 350 300 * Perfectly Competitive Outcomearrow_forwardSuppose that a company operates in the monopolistically competitive market for denim jackets. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Nex place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. (?) PRICE (Dollars per jacket) 100 90 80 70 60 50 ATC 20 40 30 20 10 10 MC MR Demand 0 + + 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of jackets) Mon Comp Outcome Min Unit Cost at the optimal the efficient scale. Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that P= ATC quantity for each firm. Further, the quantity the firm produces in long-run equilibrium is True or False: This indicates…arrow_forward
- Use the following graph for a monopolistically competitive firm to answer the next question. Dollars (5) 22 32 0 10 20 35 45 50 Quantity of Output (Units) This monopolistically competitive firm is earning economic profits in the short run and ATC Multiple Choice will continue to have economic profits in the long run will earn only normal profits in the long run this will cause its demand curve to shift to the right in the long run. this will cause its cost curves to rise in the long runarrow_forwardBriefly explain monopolistic competition and provide an example of this in a South African industry.arrow_forwardV11 Read the article Internationally Acclaimed Quilter Claims Fraud in Lawsuit Seeking Share of Quilts’ Profits. According to the article, “[t]he lawsuit says any agreement between the quilters and the defendants was oral and was not put into writing.” After studying the statute of frauds in this unit, why is the failure to put the agreement into writing problematic? Be specific in your answer, citing any of the statutes of frauds that you think may apply to the lawsuit. "New Answerarrow_forward
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