Question

18. How short-run profit or losses induce entry or exit

Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal-revenue curve (MR), marginal-cost curve (MC), and average-total-cost curve (ATC).

Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss.

Given the profit-maximizing choice of output and price, the shop is making _______ profit, which means there are _______  shops in the industry relative to the long-run equilibrium.

Now consider the long run in which bike manufacturers are free to enter and exit the market.

Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph.

Which of the following statements are true about both monopolistic competition and monopolies? Check all that apply.

• Firms can earn positive profit in the long run.

• Firms earn zero profit in the long run.

• Firms are not price takers.

• Price is above marginal cost.

Answer 1

Proht 3oot 225 200 Shop is making positive profit which means. there are less shops in the industry. Due to positive profit new firms will enter that will decrease the demand for each individual sien. New Demant Correct- Firms are not price takess Price is above marginse cost.