Problems

P11.1 Market Structure Concepts. Indicate whether each of the following statements is true or false and explain why.

A. Equilibrium in monopolistically competitive markets requires that firms be operating at the minimum point on the long-run average cost curve.

B. A high ratio of distribution cost to total cost tends to increase competition by widening the geographic area over which any individual producer can compete.

C. The price elasticity of demand tends to fall as new competitors introduce substitute products.

D. An efficiently functioning cartel achieves a monopoly price/output combination.

E. An increase in product differentiation tends to increase the slope of firm demand curves. P11.2 Monopolistically Competitive Demand. Would the following factors increase or decrease the ability of domestic auto manufacturers to raise prices and profit margins? Why?

A. Decreased import quotas

B. Elimination of uniform emission standards

C. Increased automobile price advertising

D. Increased import tariffs (taxes)

E. A rising value of the dollar, which has the effect of lowering import car prices

P11.3 Monopolistically Competitive Equilibrium. Soft Lens, Inc., has enjoyed rapid growth in sales and high operating profits on its innovative extended-wear soft contact lenses. However, the company faces potentially fierce competition from a host of new competitors as some important basic patents expire during the coming year. Unless the company is able to thwart such competition, severe downward pressure on prices and profit margins is anticipated. A. Use Soft Lens's current price, output, and total cost data to complete the table:

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