Give an example that shows what happens to losses when some firms exit a monopolistically competitive industry.
What will be an ideal response?
Examples will vary, but should show a thorough understanding of what happens when firms exit a monopolistically competitive industry. For example, let’s say the fast food market is having large losses because of decreased popularity. As a result, many restaurants exit this industry. Soon there is an increased demand for fast-food from the remaining restaurants. Gradually, the losses for these restaurants are reduced until the industry reach zero economic profits. Also, the demand becomes more inelastic because consumers have fewer substitutes for fast food.
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Use the following graph for a perfectly competitive firm to answer the next question.
At its short-run equilibrium point, the firm's
A. marginal revenue equals its average variable cost. B. marginal cost equals its average fixed cost. C. marginal revenue equals its average total cost. D. marginal cost equals its average variable cost.
Fiona and Alicia divide their time equally between ironing shirts and cooking meals. Fiona can iron 5 shirts and cook 2 meals in an hour. Alicia can iron 6 shirts and cook 1 meal in an hour. If they have to iron 15 shirts and cook 5 meals, who should specialize in which activity?
a. Fiona should do all the work. b. Alicia should do all the work. c. Fiona should specialize in cooking meals and Alicia should specialize in ironing shirts. d. Alicia should specialize in cooking meals and Fiona should specialize in ironing shirts.
Identify some of the basic assumptions of monopoly
Economists before Keynes assumed that equilibrium GDP occurred
a. automatically. b. only with the help of government stabilization. c. if spending was generally greater than output. d. only in socialist economies with central planning.