a. False, as in monopolistic competition there are no restrictions for entry, other firms can enter the market easily, and in the long-term period all firms are making 0 economic profit. b. False, as price discrimination involves market segmentation which allows to charge a higher price to the segment with low elasticity.
With more firms in the industry, it is harder to negotiate the agreements, moreover, with low entry barriers you cannot keep the high price for too long as such profit attracts potential rivals.
In monopolistic competition firms are trying to differentiate their products and advertisement is the way to achieve the Marketing differentiation.
The firm would operate at point q2 as the market is in the long-run equilibrium.
At this level of output, the price equals the average total cost of production.
In the long-run equilibrium the economic profit is zero.
This is the long run situation, as the demand curve reaches the ATC at the same quantity at which marginal revenue equals marginal costs.
Senior citizen discounts is a type of price discrimination as these restaurants are trying to attract more people receive maximum profit. Senior citizen discount is an age-based price discrimination example. Early bird specials are also a type of price discrimination, as it attracts customers who retire earlier in the day—the elderly to eat in restaurants during the low traffic hours.
Innovation and product development are the way to accomplish the product differentiation and decrease the costs of production.
Forming a cartel helps to limit outputs, raise prices in the industry and increase economic profit using the lack of transparency.
Cartels provide great opportunities for increased profit, but members of cartel have the encouragement to cheat and break the quotas sooner or later.
The Lite and Kool will operate at quantity of 200 pairs and price of $75 per pair.
The economic profit would be $40 per pair or $8000 per period.
