Suppose that a firm produces wool jackets 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. PRICE (Dollars per jacket) 100 8828 292 90 80 70 60 50 40 30 20 10 0 0 MC 10 ATC MR 20 30 40 50 80 70 80 90 100 QUANTITY (Thousands of jackets) Demand а Mon Comp Outcome * Min Unit Cost A W
Suppose that a firm produces wool jackets 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. PRICE (Dollars per jacket) 100 8828 292 90 80 70 60 50 40 30 20 10 0 0 MC 10 ATC MR 20 30 40 50 80 70 80 90 100 QUANTITY (Thousands of jackets) Demand а Mon Comp Outcome * Min Unit Cost A W
Chapter14: Monopolistic Competition And Product Differentiation
Section: Chapter Questions
Problem 5P
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Transcribed Image Text:Suppose that a firm produces wool jackets 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.
(?)
PRICE (Dollars perjacket)
100
90
80
70
60
50
40
30
20
10
0
0
MC
10
ATC
MR
20 30 40 50 80 70
QUANTITY (Thousands of jackets)
80
Demand
90 100
O
F
++
Mon Comp Outcome
Min Unit Cost
hp
e
Transcribed Image Text:PRICE (Dollars per jacket)
80
70
60
50
40
30
20
10
0
0
MC
MR
10 20 30 40 50 60 70 80
QUANTITY (Thousands of jackets)
ATC
True
Demand
O False
90 100
Mon Comp Outcome
Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that
optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is
Min Unit Cost
True or False: This indicates that there is a markup on marginal cost in the market for jackets.
at the
the efficient scale.
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 little entry of new firms in the market.
1
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