Answered: ced by each firm. Which of the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Perfect Competition

The market for peanut butter in Nutville is monopolistically competitive and in long-run equilibrium.

The following graph shows the marginal-cost (MC) curve and the average-total-cost (ATC) curve for a peanut-butter-producing firm. It also shows the demand curve and marginal-revenue (MR) curve faced by a firm operating in a monopolistically competitive environment.

On the following graph, use the black point (plus symbol) to show the profit-maximizing output and price for a typical firm operating in a monopolistically competitive environment.

One day, consumer advocate Skippy Jif discovers that all brands of peanut butter in Nutville are identical. Thereafter, the market becomes perfectly competitive and again reaches its long-run equilibrium.

On the previous graph, use the grey point (star symbol) to show the market price in this case and the quantity produced by each firm.

Which of the following statements are true for a typical firm in this market given the transition from monopolistic competition to perfect competition? Check all that apply.

Average total cost decreases.

The quantity remains unchanged.

The price increases.

Profit increases.

Marginal cost increases.

Demand
Proft Max Under MC
Perfect Comp Outcome
ATC
MR
Quantty
Price, Cost, Revenue

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