Practice Questions Chapter 1 1. People respond to incentives ...

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Chapter 171. Categorize each of the following markets as one of: competitive,monopolistic, or monopolistically competitive. Explain.a. toothpasteb. local newspapersc. magazinesd. wheate. video gamesf. beer2. Suppose that there are many restaurants in the city and that each hasa somewhat different menu.a. In Exhibit 1, draw the diagram of the cost curves (average total costand marginal cost), demand curve, and marginal revenue curve forMario's Pizza when it is in long-run equilibrium.Exhibit 1b. Is Mario's Pizza profitable in the long run? Explainc. Is Mario's Pizza producing at the efficient scale? Explain. Why doesn'tMario's expand its output if it has excess capacity?Practice Questions to accompany Mankiw & Taylor: Economics 44
d. In Exhibit 1, show the deadweight loss associated with Mario's level ofoutput. Does this deadweight loss occur because the price is higherthan a competitive firm would charge or because the quantity is smallerthan a competitive firm would produce? Explain.e. Suppose that Mario's engages in an advertising campaign that is ahuge success. In Exhibit 2, draw the diagram of Mario's cost curves,demand curve, and marginal revenue curve and show Mario's profit inthe short run. Can this situation be maintained in the long run? Explain.Exhibit 23. For each of the following pairs of firms, which firm would likely spend ahigher proportion of its revenue on advertising? Explain.a. the maker of Disprin or the maker of a generic aspirin pillb. a firm introducing a low quality ice cream or a firm introducing a highquality ice cream that each cost about the same to makec. the bakery that bakes Hovis bread or a wheat farmerPractice Questions to accompany Mankiw & Taylor: Economics 45
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