Represent the quantity output produced and price charged per unit by a monopolistic competitor graphically.
Explanation of Solution
The monopolistic market is a blend of
According to the above figure, market will produce at which MC equal MR or at the negative region of Ac, where price is greater than the marginal cost. As a monopoly, the monopolist gets a supernormal profit in the initial time. Attracted to this profit, other firms enter the market. And in the long run, it only attains a normal profit. Shown below in figure 2.
The firms are attracted to the market, and they share the profit in the market that exists early. Then, the price of a good will decline, and it becomes equal to ATC. Then, the supernormal profit in the short run becomes normal profit in the long run.
Monopolistic market: Monopolistic market is a market with many sellers producing differentiated products.
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