Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm.

Exploring Economics
8th Edition
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Author:Robert L. Sexton
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Chapter14: Monopolistic Competition And Product Differentiation
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Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve,
marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm.
Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next,
place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost.
PRICE (Dollars per razor)
100
90
8
70
60
50
40
30
20
10
0
D
MO
10
ATC
MR
20 30 40 50 60 70
QUANTITY (Thousands of razors)
60
Demand
90
100
Mon Comp Outcome
Min Unit Cost
Transcribed Image Text:Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. PRICE (Dollars per razor) 100 90 8 70 60 50 40 30 20 10 0 D MO 10 ATC MR 20 30 40 50 60 70 QUANTITY (Thousands of razors) 60 Demand 90 100 Mon Comp Outcome Min Unit Cost
Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that
firm. Further, the quantity the firm produces in long-run equilibrium is
the efficient scale.
True or False: This indicates that there is a markup on marginal cost in the market for razors.
O True
O False
at the optimal quantity for each
Monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. The presence of the
externality implies that there is too little entry of new firms in the market.
Transcribed Image Text:Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that firm. Further, the quantity the firm produces in long-run equilibrium is the efficient scale. True or False: This indicates that there is a markup on marginal cost in the market for razors. O True O False at the optimal quantity for each Monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. The presence of the externality implies that there is too little entry of new firms in the market.
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