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Monopolistic Competition Profit on the Graph quiz #1 Flashcards

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Monopolistic Competition Profit on the Graph quiz #1
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  • What is the shape and position of a monopolistic competitor's demand curve?
    A monopolistic competitor's demand curve is downward sloping and lies above the marginal revenue curve, reflecting the firm's ability to set prices due to product differentiation.
  • At what point on the graph does a monopolistic competitor maximize profit or minimize loss?
    Profit or loss is maximized or minimized where the marginal revenue curve intersects the marginal cost curve.
  • How do you determine the price at the profit maximizing quantity in monopolistic competition?
    The price is found by moving up from the profit maximizing quantity to the demand curve on the graph.
  • What formula is used to calculate total profit or loss in monopolistic competition?
    Total profit or loss is calculated as (Price - Average Total Cost) multiplied by Quantity.
  • How is the area representing profit shown on a monopolistic competition graph?
    Profit is represented by the area between the price (from the demand curve) and the average total cost at the profit maximizing quantity.
  • What does it mean if the average total cost curve is above the demand curve at the profit maximizing quantity?
    It means the firm is incurring a loss, as the cost per unit exceeds the price received per unit.
  • Why is the loss minimizing quantity important in monopolistic competition?
    The loss minimizing quantity ensures the firm loses the least possible amount when average total cost exceeds price.
  • How does the calculation of profit in monopolistic competition compare to perfect competition?
    The calculation is similar, but in monopolistic competition, the marginal revenue curve is separate from the demand curve.
  • What additional curve is needed on the graph to calculate profit besides demand and marginal revenue?
    The average total cost curve is needed to calculate profit or loss.
  • What happens to the area representing loss if a firm produces at a quantity other than the loss minimizing quantity?
    The area representing loss becomes larger, meaning the firm incurs a greater loss.