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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Sleek Sneakers Co. is one of many firms in the market for shoes.

a. Assume that Sleek is currently earning short-run economic profit. On a correctly labeled diagram, show Sleek's profit-maximizing output and price, as well as the area representing profit.

b. What happens to Sleek's price, output, and profit in the long run? Explain this change in words, and show it on a new diagram.

c. Suppose that over time consumers become more focused on stylistic differences among shoe brands. How would this change in attitudes affect each firm's price elasticity of demand? In the long run, how will this change in demand affect Sleek's price, output, and profit?

d. At the profit-maximizing price you identified in part (c), is Sleek's demand curve elastic or inelastic? Explain.

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Subpart (a):

To determine
Short run and long run equilibrium of amonopolistic competitive firm.

Explanation

Figure 1 illustrates the market equilibrium in the monopolistic industry.

Figure 1

Figure 1 depicts the market of shoes and shows Sleek Sneaker Co’s MC curve, MR curve, demand curve, and average total cost curve...

Subpart (b):

To determine
Short run and long run equilibrium of amonopolistic competitive firm.

Subpart (c):

To determine
Short run and long run equilibrium of amonopolistic competitive firm.

Subpart (d):

To determine
Short run and long run equilibrium of amonopolistic competitive firm.

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