Suppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. 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. 100 90 Mon Comp Outcome 80 70 60 Min Unit Cost АТС 30 20 10 MC A MR Demand 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of bats) Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that MR= MC ▼ at the optimal quantity for each firm. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is greater than ▼ the minimum average total cost. True or False: This indicates that there is excess capacity in the market for bats. O True False Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the externality implies that there is too much entry of new firms in the market. PRICE (Dollars per bat)
Suppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. 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. 100 90 Mon Comp Outcome 80 70 60 Min Unit Cost АТС 30 20 10 MC A MR Demand 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of bats) Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that MR= MC ▼ at the optimal quantity for each firm. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is greater than ▼ the minimum average total cost. True or False: This indicates that there is excess capacity in the market for bats. O True False Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the externality implies that there is too much entry of new firms in the market. PRICE (Dollars per bat)
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter10: Monopolistic Competition And Oligopoly
Section: Chapter Questions
Problem 11PAE
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Transcribed Image Text:Suppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue
(MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve.
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.
100
90
Mon Comp Outcome
80
70
60
Min Unit Cost
50
ATC
30
20
10
MC
MR
Demand
10
20
30
40
50
60
70
80
90
100
QUANTITY (Thousands of bats)
Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that MR = MC
at the
optimal quantity for each firm. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is greater than
the
minimum average total cost.
True or False: This indicates that there is excess capacity in the market for bats.
True
False
Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the
externality implies that there is too much entry of new firms in the market.
PRICE (Dollars per bat)
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