Explain how short-run and long-run equilibrium in monopolistic competition differ. Use graphs to illustrate your answer. Be sure that your graphs are completely and correctly labeled.
What will be an ideal response?
Figures 13-1 and 13-2 in the text are the relevant models. The short-run equilibrium for the monopolistic competitor is akin to that of monopoly. The firm can expect to earn economic profit. The demand curve for the monopolistic competitor is flatter (more elastic) than the demand curve for the monopolist. With economic profit, one can expect entry to occur. New firms will take away some demand from existing firms, causing the price and quantity to drop.In the long run, the typical firm will earn no economic profit. Profit maximization will occur where MC = MR, which is at the quantity where P = AC, where the AC curve is tangent to the demand curve. When profits are zero, no entry or exit occurs.
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If Country A opens up their corn market to trade with the rest of the world and the global price of corn is higher than the equilibrium price of corn in Country A, then Country A will ________ corn, which will ________ consumer surplus, ________
producer surplus, and ________ total surplus. A) import; increase; decrease; increase B) import; decrease; increase; increase C) export; increase; decrease; increase D) export; decrease; increase; increase E) export; decrease; increase; decrease
Economists object to monopoly because
a. monopoly profits go to the rich. b. monopolies overproduce to maximize profits. c. monopolies are usually polluters. d. monopolists keep output below efficient levels.
In most countries, primary and secondary education is the responsibility of the
A. private business sector. B. religious institutions. C. government sector. D. household.
Monetarists believe the best way to halt inflation is to
a. put more money into the economy b. raise taxes c. slow the growth rate of the money supply d. impose controls on prices e. none of the above